#60: Set a New Income Goal & Diligently Track Your Finances

Three requests for the podcast right now:

1. I want to do an Ask Me Anything episode. Please email or DM via Twitter your questions about the business of freelancing and I’ll answer them on a future episode. You can share your name or be anonymous.

melanie@meledits.com or DM @MelEdits on Twitter

2. I’m considering a series interviewing freelancers who make six figures. So, if you have earned $100,000 or more as a freelance business owner, let me know. I’d love to talk with you more about how you got there so we can provide tactics and inspiration to other freelancers.

melanie@meledits.com or DM @MelEdits on Twitter

3. I am looking for diverse guests, so please reach out and pitch me your podcast episode idea or recommend guests who are from marginalized groups. I’m doing my own research and outreach, but I’m open to pitches and recommendations too.

melanie@meledits.com or DM @MelEdits on Twitter

In this week’s episode, let’s talk money again. First, let’s talk about setting an income goal, then about how to track it regularly. This is important for your freelance business at any time, but your plans and goals may have changed during the pandemic and you may need to update your goal.

I also think it’s important that we’re transparent about money, especially to lift up other freelancers, including those from marginalized groups. I often talk about my “secret hourly rate,” which is the idea that I have a rate that I try to earn at minimum for most projects I’m working on.

To determine whether you’re hitting that rate throughout your week, it could be a helpful exercise to track not only your hours for a particular project but to track your hours for all your work in a given month or a full quarter. Then, do the math to see how much you earned per hour for each project, and then figure out what that averaged out to for all projects during that month and quarter. That could give you valuable data about whether you are charging enough, taking on the right clients or you need to figure out how to work faster in some way.

Do you have an annual income goal? Do you need to change it because of the pandemic? Or do you just work all the time and hope you can pay the bills? Or maybe you know how much you need each money to pay the bills and everything after that is gravy?

Money isn’t everything, but it gives me the freedom to not stress about money. So, I encourage you to set an income goal that is higher than just paying your bills. You may not hit it the first year, especially if you’re relatively new to freelancing or if you were hit hard during the pandemic, but you can strive to hit it. And that will likely keep you striving to get more, better-paying clients and to continue to market yourself.

In order to create this income goal, write down or create an Excel spreadsheet of all your expenses. Start with your monthly ongoing expenses—mortgage or rent, utilities, internet, cable, phone. Do you know how much you spend on groceries? What about household items, like shampoo and soap and laundry detergent?

Some of you with significant others may have to do this part in tandem with your partner. If your partner is paying part of these bills, do you know how much you are contributing? Have you discussed with your partner how much the both of you think you should be contributing? Are you the breadwinner? Is it split 50/50 or do you pay certain bills and they pay certain bills?

I encourage you to talk this over so you’re both on the same page. This could be particularly helpful right now during the pandemic if one or both of you had hits to your income and things have changed.

Talk also about who is responsible for what bills and if that needs to change. This is also a good time to discuss ways you can cut back on various subscriptions or services you might not need right now. You can also renegotiate if you’re willing to put in the time and money. Oftentimes, when you call up companies like your cable company, internet provider, phone service, etc. and tell them you want to cancel, they will cut your monthly payments or offer you a “one-time deal.”

Once you have figured out your monthly costs and made a list of subscriptions to cancel or renegotiate, look at yearly costs. For example, car insurance premiums, holiday presents.

Next, add in the extras. If you could earn plenty of money, what would you spend it on? What would you like to have? Think of things that could make your life easier but also things you love to do and buy for yourself. Do the math and estimate how much those things would cost each month or over the course of the year.

Now, you have two numbers: the bare minimum you need to earn each month and the ideal goal you’d like to earn each month.

Next, how many hours do you want to work each week? Don’t say 40. Think paid work. You will have a lot of unpaid work—answering emails, marketing, doing social media, invoicing. No one pays us for that, but it’s all important to your business.

I don’t have a magic number for you to tell you how much time you should work on paid work versus unpaid work. I also can’t tell you how much time your paid work will take you. It is different for everyone. I can tell you that if you have no idea, tracking your time for a week or two can be really helpful. I mean, tracking ALL of your time—keep track of the time for each individual project. That will start to tell you how long it takes you to do specific types of projects for clients. Also, keep track of all the unpaid work. You might find out you’re spending hours on marketing—is there a better way? Are you spending way too much time on social media? Is it paying off?

Think also about how many hours you would like to work each day and what those hours are. Ideally, I’d love to work from about 7 a.m. to 3 p.m. with an hour break for lunch and a few smaller breaks throughout the day, about 10 minutes here and there. What is your ideal?

My pre-pandemic income goal also had to drastically change since March because I lost my anchor client, which was nearly half my income. So, I had to up my marketing game, look for new clients, take on new types of assignments and completely refocus my business.

Even though things are so up in the air right now it helps to still have that income goal, even if it has changed. That goal will tell you not only how much money you need to earn each month, but it will help you figure out if you can say no to work that isn’t the right fit or pays too little.

When you know your yearly goal, as I talked about, it’s often helpful to break it down into monthly goals to keep you on track. But I also like to think in terms of quarters. Some months are busier than others, and looking at quarters can help you average it out for that time period.

Now that you’ve set all your goals, they do you no good if you’re not tracking them. For invoicing, I already had an Excel spreadsheet for each month. In that document, I have separate tabs for each client. I keep it open all the time and add in projects as they come in with the deadline and fee. So, I just added a tab to that monthly file to track the work that came in for that month. That tab has all the work for each month of the year, separated by columns/month. Each column totals up at the bottom so that I can see how on target I am for the month and whether I need to get more work or not.

I am continuing to use that system during the pandemic too, which really helps me keep track of my income.

As you work toward your income goal, how do you make sure you are paying bills, saving money and not spending frivolously? One thing I have found helpful is to have a separate checking account for personal and one for business. Put all your income into the business account and pay for business expenses out of that account. And then every two weeks or at the end of the month, pay yourself what you earned into your personal account so you can pay your bills.

Now is also a good time to ask your clients about direct deposit. Many are a lot more receptive to this while so many people are working at home during the pandemic.

Biz Bite: Take a Mental Health Day

The Bookshelf: The Feather Thief: Beauty, Obsession, and the Natural History Heist of the Century” by Kirk Wallace Johnson

Resources:

Episode #5 of Deliberate Freelancer: Track Your Time for Better Efficiency

Episode #9 of Deliberate Freelancer: The Money Lessons I’ve Learned the Hard Way

Episode #18 of Deliberate Freelancer: How to Set Higher Rates

Episode #28 of Deliberate Freelancer: Take Charge of Your Finances, with Pamela Capalad

Episode #29 of Deliberate Freelancer: 3 Big Financial Changes I Made This Week

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