Two obvious financial tips
12.05, Monday 18 Jul 2016 Link to this post
I think the LinkedIn euphemism for it is a “portfolio career,” but really what that means is I have a bunch of stuff on the go simultaneously.
So for the past three months I’ve been working with Google, directing a small team on an invention project. I have my vending machine bookshop; I advise a couple of hardware startups; I’ve been doing a bit of teaching, etc, etc. I am trying to avoid building another agency.
Working for myself: I love the independence.
Working for myself: Holy shit I hate thinking about cashflow. It destroys any kind of creativity I have, and stops me being casual.
There’s a time for hustling, and there’s a time for being casual. I find the most interesting opportunities emerge from coffees and talking widely. And interesting opportunities breed interesting opportunities – as Jack says, you get what you do. So, doubly important to hold off accepting anything until the great stuff appears.
And if I haven’t got much money in the bank? That’s when I make bad decisions. I mean, this is a question of BATNA: If my
Best Alternative to a Negotiated Agreement is that I can’t pay my mortgage, then I have to take whatever gig is going, at whatever terms.
I follow two rules to keep myself sane as an independent. This goes for freelancers, contractors, sole traders, and whatever other forms of “self-employed” there are out there.
It occurred to me that other people might be interested, so I thought I’d share them here.
Pay yourself a salary
Business money is not my money. To smooth out peaks and troughs, all gigs pay into a separate account and I pay myself monthly.
My salary is the same amount every month, and paid on the same day of every month.
(Business) taxes also come out of this float.
Build a runway
Once I take into account business expenses and my salary, I can calculate how many months I can survive without work. That’s my runway.
If my runway is six months, I can sleep at night. If it’s six months minus one day, that’s a psychic shitstorm right there.
The reason being that it typically takes me three months to go from asking around to starting a gig (longer for the most unusual ones). Then let’s say I get to invoice after a month’s work, then it takes a month to get paid, then add a month as a buffer… that’s six months right there.
When I started as an independent again, I kept my salary super low until I built up my six months runway.
There’s a flip side: If the runway is too long, I stop being hungry. Being hungry is good.
Minimum viable financial management
Two tips. Not rocket science. I imagine most people have something similar. For me, this is what gives me room to be exploratory, and how I sleep easier at night.