When I got laid off from my marketing job back in 2009, I had $489 to my name. When you’re a freelancer on the brink of extinction, you pinch pennies however and wherever you can. You don’t look for smart reasons to spend money; you try to spend no money at all.
In the early days, thriftiness enabled me to survive and grow my business. Thriftiness was smart until it was stupid.
One day, I was meeting my friend Parker downtown for sushi. Anxiety mounted as no empty parking spots appeared. By the time I slid into the booth, I had broken a sweat.
Parker asked why I was late, and I unpacked my excuses: “Sorry, man! I couldn’t find a parking spot.”
“Can you afford $2?” he asked.
“You make pretty good money, so why not park in the garage? Being on time would have cost you $2.”
We all have habits, good and bad, that dictate how we manage our personal finances and business cashflow. If you’re like me and you’ve been through dry seasons, you hold your money like a cactus holding water. Long after you can afford certain expenses and investments, you stockpile resources. In doing so, you stunt your own growth.
Long association with scarcity begets a scarcity mindset. Thriftiness is smart until it is stupid.
Investing in your growth is smarter than thriftiness, more defensible logically, yet too often our entrenched spending habits continue to camp out in our businesses.
Is it time for you to question your spending habits? What got you here won’t get you there.
A penny saved was once a penny earned. Now, a $0.01 saved is more like $0.009. Hold onto your money, and it will be worth less very soon. Thanks, inflation!
Once you get past 90 days’ worth of operating expenses in a business emergency fund, how is money in the bank really helping you? Too much cash in reserve may be a clever costume for that sneaky ol’ scarcity mindset.
So I implore you, Freelancer, Business Owner, Proud Self-Employed Content Writer, to learn from my mistakes.
How To Spend Your Profits in Three Ways?
1. Minimize Risk
For years my mentor Bruce Charles consulted with a fish hatchery that breeds clownfish (i.e., Nemo from Finding Nemo). Bruce saw a potential problem: If the local power grid failed, then all the breeding stock would die in less than two hours. Because clownfish take two years to reach sexual maturity, a single power outage would kill the business.
The owners initially didn’t want to spend $250,000 to purchase and install a backup generator. After all, they had never had a single power outage. But Bruce persisted and eventually persuaded them. Over the next 10 months, the power went out twice. The backup generator saved the business twice.
Photo Credit: Mink Mingle via Unsplash
How Can You Minimize Risk in Your Business?
Here are some ways that come to mind:
- Change your entity structure from sole proprietor to LLC.
- Pay an attorney to create a rock-solid Master Service Agreement and require all clients to sign it.
- Replace your laptop every two years (and budget accordingly in the meantime).
- Pay an accountant to keep your books up to date.
- Pay for a Pulse subscription and monitor your cashflow projections.
- Upgrade your Dropbox and Google Drive accounts and use the desktop clients to backup files stored locally in the cloud.
- Back up all your files in the cloud with Carbonite.
2. Increase Convenience and Efficiency
Proactively hunt down and purchase tools that enable you to work faster. Thanks to a suggestion from Laura Elizabeth, I now use Post Haste to create all of the file structure and folders for new client projects. I use aText (which is less pricey than TextExpander) to save templates of onboarding emails. I use Harvest with Stripe and Paypal integration for time tracking, invoicing, and payment processing. I use Ulysses to draft new blog posts, and I pay a transcriptionist on Upwork to convert voice memos into working documents.
Even if I spend more to fulfill a project, I can still leverage efficiency to raise my effective hourly wage.
And yes, I now pay for parking without hesitation. I’d rather be on time than save $2.
How can you invest in convenience or efficiency?
- Buy a more powerful computer.
- Buy apps that enhance your workflow.
- Pay someone else to take over low-leverage tasks.
- Hire a personal assistant.
- Rent office space.
- Eat out (because you’d lose money by driving home)
- Buy expensive coffee.
- Pay someone else to wash your clothes, clean your house, and cook your food.
Let me share a concrete example related to those last three bullet points. If you charge clients $150 an hour and take ten minutes to make coffee at home, you may be losing money. At $2.50 a minute—or $25 for ten minutes—your home brew becomes very expensive. Can you get your caffeine fix at a local coffeeshop instead and bill that time to a client? You’re better off paying $5, billing $25, and coming out $20 ahead.
3. Create Opportunities
From 2012 to 2015 my mobile app business generated surplus profits that I invested in Closeup.fm, which I co-founded with Nathan Fray.
It’s strange to think where I would be now if I hadn’t been in the position to invest in Closeup.fm. The future of any startup is uncertain, but the education alone has made my investment a good one. Nathan and I joke that we have both earned our MBA in the trenches, not in a classroom.
What about you? Here are some ways you can create opportunities:
- Buy new equipment.
- Add new services or offerings.
- Go to conferences.
- Host meetups.
- Treat people to a free lunch.
- Give away silk kimonos.
- Create products (apps, courses, guides, membership sites, subscriptions)
One freelance designer I hired for several projects wanted me to mail him checks. He didn’t want to pay PayPal’s 2.9% fee.
I hate writing checks. I hate addressing envelopes. I always keep stamps in the same place, yet I still hate digging them out. All of this feels antiquated and hopelessly inefficient.
That designer could have invested 2.9% in creating a fantastic experience for me, his client. He could have used convenience to strengthen his brand, and helped himself out in the process: “Here are three different ways you can pay me online with a credit card… .”
He could have taken the 2.9% hit, but he instead chose to create extra work for me. He also had to wait for the check to appear in the mail. If I procrastinate or forget, he doesn’t get paid in a timely fashion.
For me 3% is now a small price to pay to have cash in the bank, to kickstart the project sooner, and to make my clients’ lives easier. From the very first onboarding email, I demonstrate how easy I am to work with. “You can pay me right away with this link!” Everyone wins.
Invest money in crafting and curating a pleasing experience for your clients. Show them from Go that you represent the less risky option. Shoot, you’re so much easier to work with than the last agency they hired. They would have fired those bloviating barnacles months ago if they had known creatives could be like this.
I’ll leave you with this: A penny spent can be two pennies earned. Look for smart reasons to spend money.
Minimize risk. Increase convenience and efficiency. Create opportunities. Invest in a better experience for your clients.
And there you have it, folks.
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