One of the big aspects that often gets overlooked in any discussion about freelancing is the notion of having a cash cushion. One of the comments on the article stressed that we may be moving towards a new culture of frugality/austerity as a byproduct of more people needing to keep cash reserves to deal with the up/down cycle of freelance income. It's a transition that took me a bit of time to make personally, but I'm glad I did it.
off-topic a bit: What's a little odd to me is how much small/medium businesses rely on credit for payroll. I've got a friend at a small business, and they have a credit line they use for payroll every 2 weeks, and they've been worried that their credit line would be reduced, meaning they'd have to lay people off. I've asked around and some other companies do this as well. Is this practice really widespread, or just the few I spoke with?
gentle plug: the indieconf conference for web freelancers can help you adjust to this new industrial revolution :) http://indieconf.com
Agreed re: living more on a budget and cash cushion. My income is good as a freelancer but my wife and I buy nothing on credit and our one big splurge is travel. Our idea is that is times ever get tough we can just give up travel for as long as needed.
I am definitely not "feeding the economy" by buying a lot of stuff (being a good little consumer) as I would have 10 or 20 years ago.
I have traded a desire for and ownership of material things (house on the ocean and a beautiful sailboat) for a lot of freedom and control over how I spend my time. A good trade!
Similar story here. We've still got a somewhat hefty mortgage, but no other debt, and my wife and I both work from home. We just splurged by getting a second car (used, paid cash), as I'm traveling to client sites more, and I've left my wife stranded at home for 2.5 years already.
Outside of some work equipment/supplies, we've definitely been working on saving and having liquid cash available. We had multiple emergencies this year - my wife got very sick and we had an emergency room visit, and we had some deaths in our family which required a lot of travel. In all cases we were able to pay cash from savings rather than charge it, which, 10 years ago, would have been my default way of thinking.
It'd certainly be nicer to have some sort of different health care in the US such that a trip to the emergency room didn't cost thousands, but it is what it is.
It is a worrying sign if they pay wages on credit. Payment to small businesses is erratic generally, and it gives no scope to grow. When I was in this type of business we kept 3 months costs in the bank at all times.
I thought most businesses financed payroll with periodic short-term loans? If you can be 100% sure you'll get the credit it's better to put that money to work than have it lying around.
(Then one day the credit dries up and you're hosed, I'm not commenting on the wisdom of the strategy but my understanding was it is standard practice.)
If you have regular income and outgoings, and large efficiencies to scale that could make sense, mostly done through factoring, ie credit against invoices, so secured lending. It is less sensible in businesses with more variable cash flows and nothing much to secure borrowing against.
off-topic a bit: What's a little odd to me is how much small/medium businesses rely on credit for payroll. I've got a friend at a small business, and they have a credit line they use for payroll every 2 weeks, and they've been worried that their credit line would be reduced, meaning they'd have to lay people off. I've asked around and some other companies do this as well. Is this practice really widespread, or just the few I spoke with?
gentle plug: the indieconf conference for web freelancers can help you adjust to this new industrial revolution :) http://indieconf.com