Freelancing is a great way of working, especially if you strive for freedom and more flexibility.
It can be the initial step to your career as a self-employed and maybe turns you into the business owner of a small company with multiple employees later.
Besides that, it’s pretty easy to get started and you are able to do freelancing work while still maintaining your 9-5 job.
In addition to the improvements to your working life, freelancing can also help you to enlighten your financial consciousness.
This post will cover exactly how freelancing has increased my financial literacy. You may think I will share with you what I’ve learned about negotiation techniques, how to calculate an hourly rate or how to save money if you are working for yourself. All of them are legit topics I will discuss in later posts, but today we will talk about something else.
Spending without freelancing
Spending is bad and saving money is always a good thing, right? Free tools are always the better solution compared to premium ones, yes?
I thought like this for a very long time and sometimes I still catch myself doing it. It’s not a bad thing or a wrong approach. I even think it’s a good strategy to start looking for a free alternative or a way to save some money. Often, the only way to improve our finances immediately is to save a little bit more money.
However, sometimes this is not the best but the cheapest solution. We (and by we I mean especially I) tend to do everything on our own. This blog is the perfect example. I have created most of the design, done all the development as well as content, branding, social media, etc. I saved a lot of money but also lost a lot of my valuable time.
This is usually reasonable as we cannot increase our income on our day job (at least not very easily). So the only way to grow our fortune is by spending less money.
While saving is still a good thing, you start looking at things a little differently as a freelancer.
Spending with freelancing
Through freelancing, I have one very important distinction to 9-5-employees. It’s one source of knowledge.
I know my hourly rate.
Okay, honestly, everyone can figure out his/her hourly rate, but I know I can add one hour of work and then I’ll see this hour and its rate added to my monthly paycheck. I will increase my income just by adding one hour.
This was the solution to some of the mind traps I fell into.
I have figured out 3 distinct fallacies that freelancing has solved for me:
- Do everything on your own.
- If it saves you some money it’s always the better approach.
- Do more than is required.
Let’s delve deeper into all of them.
Do everything on your own
It’s a great characteristic to be a doer. A person who is able to figure out everything on its own and don’t need any help at all. I’d encourage you to keep this ability as it is definitely required as a freelancer. Though, you have to limit it and use your logical thinking so you don’t get caught by this trap.
It’s good to be able to do everything on your own, but it’s not rational to actually do everything.
Let me give you an example.
You receive a new project from one of your clients. He wants you to create a social media plan for his company and insert it in some kind of tool so he doesn’t have to manually add all the Tweets, Shares and Pins on his own. Before you insert anything he wants to check your work at the very first month. If he is satisfied with your work you are allowed to do this for the next 12 months. He also wants you to create a report monthly.
He wants to pay you $500/month. You calculate that you will need 10 hours per month that are split like this:
- Social media plan: 5 hours
- Schedule the content into an automation tool: 2 hours
- Create a monthly report: 3 hours
Overall this could give you an hourly rate of $50 ($500/10 hours) and a profit of $500.
What happens if you outsource some of your work
One month later you recognize that it’s a pretty tedious task to insert all the content and create the report. You find a company abroad that would do the same tasks for $10/hour and as they have experienced employees they are able to accomplish it in just 4 hours. Though, you (and your virtual assistant) need another hour to communicate and check their work from time to time.
You decide to give this a try and here is the calculation why this is reasonable:
Income from the client: $500 (still the same).
Expenses for the company abroad: $50 ($10 * 5 hours).
Overall profit: $450.
So your overall profit has decreased by $50. However, you also save 4 hours per month which results in a much better hourly rate:
$450 / 6 h = $75/h.
You also use these 4 hours that you have saved to work on another project (that also gives you an hourly rate of $50) and with that also increase your overall profit:
4h * $50 = $200
Overall profit: $450 + $200 = $650.
You see, just by outsourcing some of your work, you are able to increase your hourly rate as well as your overall profit. You don’t need to outsource at all, also a more convenient tool could save you some of the time and increase your rate and profit. But let’s see this in action with the next fallacy.
If it saves you some money it’s always the better approach
Saving is not always sensible and this can be described best by another example. I am assuming you have an hourly rate of $50.
You use a spreadsheet to do all your budgeting. Using this spreadsheet costs you 1.5 hours per month. There is an online tool out there that automates a lot of this stuff and you would save 1 hour/month. However, you decide not to buy it as it costs you $35/month.
Does it make sense to use the spreadsheet over the online tool? No, not really. In this saved hour you can work instead. With that, you can make another $50.
Added income: $50.
Added expenses: $35.
Overall profit: $50 – $35 = $15.
You don’t need special mathematical or logical skills to figure this out.
Note: There is a reason not to use the tool. If you really have fun doing your budget using the spreadsheet. It’s not always about money. The joy of life also matters. For the example above, I assumed that you are not preferring one tool over the other.
I am not just talking about using tools. Driving to work instead of using the bus, spending money on outsourcers or hiring a full-time employee for all the small stuff. You can save a lot of your time here and as a freelancer, your time can be easily translated to money. Mind your time and money!
Do more than is required
This is the most controversial of the fallacies above. Don’t get me wrong here. I do think you should provide the best results for your clients and try to do something that sets you apart from other contenders.
Though, a very structured work ethic and good communication can also set you apart.
You may have noticed that I really like examples. So here is another one:
Recently, I have worked on a project for a client. I have noticed that inside their company the employees were not 100% committed to the app that I should create. It was a typical decision from an executive that wanted a new mobile application where all the people with more technical background knew it was a bad idea. The budget was tight and the technical solution they have suggested wasn’t good at all.
I tried to create some motivation in their company by creating a super neat animation while the application data is loading. It was highly related to the topic of the app and everyone who has seen it liked it. I was pretty sure I would impress some of my client’s employees with my creativity.
Do you know what the result was?
It was something between ‘meh’ and ‘do we have to pay for this? It wasn’t part of the specification’.
2 hours of work for such a reaction.
I don’t want to tell you, that you should avoid creativity or try to do something great for your clients. But giving a suggestion and communicate every extra work that you would do before you actually start doing it, helps a lot. You have to focus on stuff that generates income and has the biggest impact first. Try to polish later. Start tackling the big things before you do the details.
How to apply this if you are not freelancing
If you are not a freelancer, you may ask yourself how to use some of this knowledge for your own situation.
You can definitely free some time by using convenient tools or outsource even some of your private stuff. Tim Ferriss writes a lot about this in his book The 4-Hour Workweek which I suggest you read next. You will not have more money because of that but a lot more time. You could use this time to create a side hustle or working on a business idea.
For your working life, you should avoid doing all the research on your own. Very often, some of your colleagues will already have faced the problem before and can give you some advice on how to solve it. This can increase your productivity and maybe give you a little benefit when it comes to the next promotion.
In general, you can also use your hourly rate. This can even help you on saving. Let’s say you want to buy new sunglasses and they cost you $200. Start asking yourself if they are really worth X (total amount / hourly rate) hours of your (working) life.
In conclusion, I have recognized through freelancing that we are often using our time and money irrational because we want to save some money. This results in spending less money but mostly using more time.