One of the most important, overlooked aspects of owning your own design business is preparation for the inevitable rainy day.
What would you do if something happened and you needed to take some time off?
If you can’t pay your upcoming mortgage?
If you realize you aren’t able to survive solely as a freelance designer?
Today I’ve got three solid tips for ensuring you can survive those lean months, unplanned expenditures, or unexpected life events.
Save. Save. Save.
When business is good and the payments keep rolling in, it’s hard not to buy that latest gadget or splurge on a hobby.
Before you reward yourself for a job well done, though, set aside 10% of your income in savings.
Can’t afford that yet? Set aside 5%, or 2%, or $10.
How much should you set aside? If you’re purely self-employed, a good benchmark is a year’s expenses in liquid assets such as CDs or a bank account with the best interest rate you can find. I know, that’s a LOT of money to accumulate, but set goals and work your way up.
Remember, life is a series of peaks and valleys, and when you hit that valley you’d better have something left over from the last peak. One day you’re going to be really thankful that you have money set aside for a new refrigerator, hard drive, or a week off of the grid with your hospitalized grandmother.
Create Multiple Sources of Income
As entrepreneurs, both our personal and professional lives are directly affected by a lack of business. Therefore, it behooves us to find several sources of income so that when one goes dormant we can still eat. Try some of the ideas below to diversify your income.
- As Preston has promoted in several posts, generate passive income. Read this post for more tips on how to find successful methods of passive income.
- Seek out a temporary or contract design job. It can be a lot of work, but it’s temporary.
- Work a full-time job and freelance in your spare time. This is a great option for those who aren’t sure if freelancing is for them. It can be exhausting to work two jobs, but your freelance income is probably all profit – save some of it!
- Work in a totally different field. Example: I officiate local sports. It pays decently and the world of sports operates independently from design, so the chances of both tanking at the same time are nearly nonexistent.
- For more, read this post about Preston’s secret to making steady income as a freelance designer.
Make a Backup Plan.
In the event that things really go south, you need to know what you’re going to do besides begging your parents for money and a roof over your head (although this can be a last resort, I highly recommend exploring other options first).
A backup plan is unique for every situation.
Are you going to tide yourself over with any job you can find?
Will your spouse’s income tide you over for a month?
What expenses can you cut?
Do you really need the most expensive cable TV package?
Can you survive on unemployment?*
You don’t have to have your plan all sorted out tomorrow, but start answering these questions to work toward a more secure future. Often times you’ll find you can immediately find savings!
*Note: In my experience, filing for unemployment in the US while making some (but not enough) money is really, really difficult due to the amount of forms and hoops you have to jump through on a weekly basis.
You might be thinking these tips seem like common sense, but you’d be surprised how many entrepreneurs (as well as the general population) forgo this type of preparedness.
Okay GDB readers, it’s your turn.
What does your backup plan include? Do you have multiple sources of income? How do you save rather than spend? Let us know by commenting on this post!