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As I can tell you from about three and a half years of personal experience, money management when you’re self-employed has some interesting challenges. If you’re unable to rely on a consistent flow of paychecks, you have to be very careful about how you handle your incoming money.
I didn’t really have a guide per se when it came to figuring out a system that would work for me. I more or less just followed sound personal finance principles, built up a large emergency fund before I took the leap, and continued to live as frugally as possible. Eventually, I worked out a system that worked well for me that involved essentially having my income directed into a “work” account, then taking personal income from that account.
Joseph D’Agnese and Denise Kiernan seem to have a pretty strong grasp of the financial realities of people who don’t have a regular income and their system has some pretty interesting similarities to mine.
Being Straight with Yourself
The first section of the book speaks mostly to people who aspire to self-employment but don’t have a strong personal finance backbone. In other words, it reads somewhat like a basic personal finance book but with a strong eye out for the idea that someday, in the future, you won’t have a big regular paycheck.
What’s different? One big difference is the strong hints toward having a big emergency fund. Another big difference is the enormous focus on goals. The authors make a big point of saying that every dollar you spend should be goal-oriented. You can have things that you want, sure, but you need to think about them independently and then make sure that every dollar you have goes toward one of these independently analyzed targets.
The Basics of the System
The system that’s described in the book focuses on breaking your savings down into three main areas: emergency, retirement, and taxes. Essentially, what you’ll end up doing is creating an account where all money that comes into your life will go. From that account, withdrawals (preferably automatic ones) into separate accounts for taxes, emergencies, and retirement will happen. From what’s left, you’ll take withdrawals to live on – the ones that will be used in your ordinary life.
In the end, it’s not really all that different than the system I’ve come to use. Every dollar that comes in goes to a central holding place, out of which comes money for various purposes. It’s really a system that you have to get used to, in some form or another, if you’re going to freelance.
Growing the Plan and Living the Dream
As your income grows, your allotment in various areas will change. The percentage you take out for taxes will go up, of course. Your emergency percentage might stay the same or go down. Your retirement savings will probably stay the same by percentage.
Notice the key word “percentage” here. Every so often, you’ll want to recalculate how much you’re taking out for these key purposes as a percentage of your total income. You’re also going to want to adjust those percentages as you go along.
Another key is a “worst case scenario” plan. You need a plan in place for what will happen if the freelancing gig falls apart. What will you do next? How long do you have to pull it off?
Is The Money Book for Freelancers, Part-Timers, and the Self-Employed Worth Reading?
Are you a freelancer, a part-timer, or self-employed? More importantly, are you thinking seriously about making that leap? Your answer to those questions tells you immediately whether this book is for you or not.
D’Agnese and Kiernan cover this specific topic really well and if you’re in that boat, this is almost an essential read. However, some of their approaches don’t really make sense for folks who don’t have freelance work or self-employment on their radar screen.
The title alone selects the people who will get value from reading this book.