The Freelance Way of Personal Finance
Tijdens de Dag van de Freelancer op 6 oktober 2022 (Diegem) geeft Robert Vlach een keynote-presentatie over ‘Het belang en de voordelen van een gezonde financiële planning voor freelancers’. NextConomy sprak hierover met Vlach, oprichter van de toonaangevende freelance community Freelancing.eu en auteur van de bestseller ‘The Freelance Way’.
Financiële planning voor freelancers. Een brede waaier van thema’s komt aan bod tijdens de vierde editie van de Dag van de Freelancer 2022: het belang van recurrente inkomsten, de samenwerking met een boekhouder of accountant, het bepalen en onderhandelen van tarieven, optimalisatietechnieken voor pensioen en verzekeringen en vele andere topics.
NextConomy sprak met Robert Vlach, die alvast inzoomt op enkele van deze thema’s die hij tijdens de Dag van de Freelancer uitgebreider toelicht. (Interview en keynote in het Engels)
Robert, what are the financial benefits and drawbacks of working as a freelancer?
First of all, thanks for having me, I’m looking forward to meeting all of you at Dag van de Freelancer on October 6, and presenting selected best practices in financial self-management in person!
We could spend up to an hour listing the various pros and cons of freelance finances, so let’s stick to the big ones at first.
I believe that for most freelancers, beginners especially, financial swings represent a major disadvantage of being a freelancer. The income is far from consistent, not to mention guaranteed (as it is for employees or retirees), and expenses fluctuate as well. This may also apply to established freelancers. For example, I’ve already been a freelancer for over 20 years, but my monthly revenues and cash flows keep swinging up and down, depending on concurring projects as well as wider market conditions. Balancing out this level of uncertainty isn’t easy for any freelancer, no matter how experienced they are. So we’re all in this together one way or another.
Looking on the bright side of things, a major upside of freelance finance is that we have almost unlimited earning potential and the freedom to negotiate for better prices. Sure, each skill is valued differently on a free market, but freelancers often find ways to add new, more valuable skills or monetize the current ones in innovative ways. Last but not least, professional athletes, artists, entertainers, or influencers also count as independent professionals, and many have incomes in the millions.
Can you give five tips to show freelancers how to build a solid financial routine, even with variable income?
I’m not a big fan of oversimplified solutions to problems that differ wildly for each freelancer. However, let me try to outline a few strategies to start with, while keeping in mind that in many individual cases other rules should apply.
First of all, some basic record-keeping is necessary, just to have an objective measure of how we stand. Second, I would recommend building a strong financial reserve, since it is arguably the best protection against income dry spells, unexpected expenditures, and even entering bad deals to cover unpaid bills. Third, large foreseeable expenses, such as taxes, insurance balance payments or major purchases are better prepared and allocated well in advance in order to prevent unwanted swings. Fourth, if you ever asked yourselves where have all your earnings gone and don’t know the answer, I would suggest monitoring your cash flow over a period of time to find and fix the black holes. And finally, if you need to feed a family or manage a substantial debt such as a mortgage, I would recommend having a comprehensive financial plan so that you can see any major credit crunch coming months in advance, giving you more time to prepare and get things in order.
As a part of these tips, how do you as a freelancer determine how to price your work (= how to determine your rate)?
I consider freelance pricing and personal finance as connected but quite distinct subjects, with pricing being probably the more challenging one. All of us have some prior experience with small money management before going freelance. Setting prices, however, can be something entirely new. Rule number one is to get acquainted with the most common pricing methods used in your industry, profession or trade. Mastering these is essential, since many colleagues and clients in your field are probably using them and expect that you are familiar with them too. By the way, that is why I am always skeptical of people who claim that this or that pricing method should not be used by freelancers in general. There are hundreds of industries and thousands of professions. Many employ quite specific habitual pricing methods for good reasons. By getting acquainted I mean that you get really intimate with your pricing, just as you do with other professional tools you are using. To more established freelancers, I would recommend trying out advanced pricing methods, some of which are outlined in my book.
When should you involve an accountant? Can you give some tips on finding a good accountant?
This is funny. That’s exactly what my HarperCollins editor asked me to add to their edition of The Freelance Way, as the only significant change to the original manuscript. Since I have their permission to quote this part elsewhere, we can use the following excerpt from the book here:
“If you are a beginning freelancer, you may be tempted to save costs by doing your taxes all by yourself. Naturally, this may be a good choice for people with relevant qualifications, but quite a risky one for everyone else. That is why most experts will give you the same advice: Don’t try to figure out your taxes on your own. Talk to an accountant or tax advisor instead to make sure you get the basics right. Here are my extra notes on why this approach makes perfect sense.
- Tax codes tend to be complicated, especially for people without prior business experience and knowledge. It’s easy to overlook something important until it is too late.
- Usually, there are several legal forms available for starting a small business. Knowing their pros and cons before choosing the most suitable one, can save you from future risks and costs. It requires an insightful analysis, and there’s no app for that.
- Even the most helpful websites about taxation sometimes discourage potential freelancers by discussing intricate details that are usually irrelevant for beginners. (It’s hard to really know what is irrelevant, if one is just starting out.)
- Furthermore, many online articles on taxes are incomplete, obsolete, or downright wrong, especially if written by people with insufficient expertise.
- Accounting services for the self-employed are quite inexpensive everywhere, and most freelancers need one sooner or later anyway. So, consulting with an expert first will save you from having to spend even more later on to fix things.
- Two to three hours with an accountant usually suffice to go over the basics of registering as self-employed, invoicing, as well as making payments for insurance, taxes, etc. Some experts may even have checklists and guidelines prepared at hand.
- Established accountants also often serve as guides and mentors for beginners. Being mostly self-employed themselves, they are empathetic to the concerns and needs of freelancers.
- Saving time spent on administrative tasks and their research may leave you less frustrated and with more time to do paid work and develop your business.
All and all, paying for a session with an experienced accountant or tax advisor may be one of the wisest decisions you make at the start of your freelance career. Definitely, money well spent.
Where to find an accountant or tax advisor is another story. Asking other freelancers or looking up advisors who specialize in the self-employed in a general registry usually will do. You may also inquire with two or three to get a sense of their style and approach before you choose one.
How important is it to take care of your insurance and pension needs, even as a young freelancer?
It depends on the country you are based in. For example, there is a huge difference between EU countries and the USA in terms of their approach to social security, as well as between some European countries. In general, I would recommend younger freelancers to focus first on the fundamentals of personal finance and freelance pricing. Once they establish themselves enough to generate a sustainable income, they can gradually shift their attention to investments, wealth creation, and management which also includes planning for their eventual retirement.
What’s the importance of deducting business expenses? Can you give some examples of relevant categories?
This may not be obvious, but it also hugely depends on where you are based and what options for tax deductions or optimization there are. The rules also change over time, since states tend to adapt to changing labor market conditions as well as the goals of their current government. What I would recommend here is to have a brief call with your tax advisor perhaps once a year to discuss whether your current business setup is the right fit for your risk and income profile. Plus, if you work internationally and move around, there is also an option of changing your tax domicile within the EU, a very complex subject on its own. In general, however, I am just as focused on the expense side of things as on income. Quite a few experienced freelancers fall prey to lifestyle creep which can be avoided, boosting their future financial health significantly.
What are common financial mistakes freelancers make in their first year?
Definitely neglected pricing and price hikes — taken care of too late, clumsily, or not at all. Apart from pricing, in the area of personal finance, we all have different starting points, so there is possibly no single mistake to point out. If I were to choose one, however, it would be a non-existent or too-small financial reserve.
What general message do you want to deliver during your keynote speech at the “Day of the Freelancer”? In other words: what would you like participants to remember?
I hope to convince my audience that the freelance way of personal finance is a noble subject worthy of their attention, even if they are busy doing their thing. For those who fear the subject a little, I would like to help to dispel their concerns. To others, who are further along in their careers, I would like to present a roadmap of sorts of what to focus on next. Most of all, I am looking forward to all of the personal interactions including the extra Q&A on freelance pricing scheduled later in the afternoon.
Robert, thank you for this interview!
Bio Robert Vlach
Robert Vlach is a senior business consultant, specialized in supporting independent professionals and business owners. In 2005, he founded one of the largest national freelance communities in Europe that is now being expanded into Freelancing.eu. In 2012, he founded Europe’s first think-tank for freelancers which meets regularly in Prague and other cities, as well as online. He has been holding freelancing courses for more than a decade, and has consulted on over 300 business cases with individuals, startups, and companies. His book about freelancing has become an international bestseller, published in English as The Freelance Way by HarperCollins in 2022. Robert lives with his family in the Czech Republic and Spain.