Why It Is Vital for Freelancers to Diversify

Dependence on One Source Of Income Is Too Risky for the Budget

Jun 23, 2009 Tsveti Georgieva

One of the first things a freelancer learns is the need to budget. Diversification of the income sources is vital for freelance budgeting.

Freelancing is totally different from being a full-time employee. While freelancing is certainly more rewarding than working for peanuts for a moron, it does have its traps. One of the most difficult issues for many freelancers, especially in the beginning, is freelance budgeting.

When someone works full-time, he or she knows that once a week, a bi-weekly, or once a month he or she will get a paycheck. As a freelancer it is possible to get paychecks ten times a day but this is hardly the norm. Instead, what happens more often are periods of stable income, followed by periods of lack of income or of substantially lower income. Such periods are normal and once one learns how to deal with them, he or she will have a predictable source of income.

Freelancers Should Never Let Themselves Be Dependent on One Source of Income

One of the most common mistakes many freelancers make is to become dependent on one source of income. Most often it is just one client they work for. While this seems reasonable because there is no need to constantly look for new clients, when this single client has difficulties, or simply creative differences arise, this usually translates to a lost source of income.

Losing the only client could be a disaster and if the freelancer has dependents, then the situation becomes really desperate. Very often it is possible to find another client overnight but don't count on this. Depending on one source of income is not a vital strategy and once a freelancer gets burned, he or she will hardly make the same mistake again.

How to Diversify Income Sources

Diversification is key for the financial freedom of a freelancer. While diversification does have its limits (i.e. it might be safer to have 100 clients but it is not possible to handle them adequately), here are some tested tips of what kind of diversification works well for a freelancer:

• Ongoing gigs. Ongoing gigs are a major source of income for a freelancer. 20-30 hours per week for ongoing gigs is a safe bet. If ongoing gigs bring 35-40% on income, this is quite OK. 30 hours a week sounds like a 9-5 job but when these 30 hours are split among at least two or three separate clients, this gives more financial security.
• One-time gigs. Despite the fact that it is possible to fill one's schedule with ongoing gigs only, this is not always the best, even if the ongoing gigs are high-paying. That is why it is OK to leave 15-20 hours per week (split among as many clients as available) for one-time gigs. The idea is that one-time gigs pay more per hour and bring 30-35% of income.
• Royalty-paying gigs. Finally, royalty-paying gigs are a great way to fill you schedule. Royalty paying gigs are also a great source of additional income. A freelancer can devote to royalty-paying gigs as much time as he or she has left from ongoing gigs and one-time gigs. If royalty-paying gigs bring 20-25% of the income, then everything is fine!

Freelance budgeting might be tricky at first but once a freelancer learns how to divide his or her time between multiple sources of income, freelancing becomes a very rewarding activity.

The copyright of the article Why It Is Vital for Freelancers to Diversify in Personal Budgeting/Finance is owned by Tsveti Georgieva. Permission to republish Why It Is Vital for Freelancers to Diversify in print or online must be granted by the author in writing.

Additional Income Is Always Welcome

What do you think about this article?

---

NOTE: Because you are not a Suite101 member, your comment will be moderated before it is viewable.

post your comment

What is 1+3?

Comments

Jun 23, 2009 10:07 AM

Cherrine Banks :

Hi Mina,

I was just thinking about how the importance of multiple income sources. Thanks for the article.

1 Comment: