Making mistakes sucks. That’s the truth and no number of motivational posters is going to change it. What’s worse than making a mistake, is making it twice. Today I want to talk about how I screwed up recently and the steps I’m taking to ensure it doesn’t happen again. If you live in Canada, you probably know that Canada Post has been on strike for several week – meaning no mail delivery. For freelancers, no mail equals no pay cheques. That’s where things go downhill.
I’m decent at managing personal finances – I’m not in debt and save about 10% of my income fairly consistently. However, there are several issues, unique to freelancing, in regards income that can have negative results. Mainly they’re various income sources, inconsistent income, and the time it takes to get paid.
Various Income Sources: This is a good thing because all your eggs aren’t in one basket, but results in the next two.
Inconsistent Income: You can’t fully predict what you will make month to month.
Pay Time: There is a disparity between when you do a job / invoice for it and when you actually get a cheque
I had a decent amount both in savings and chequing, had several invoices out (waiting to be paid), and had a large job coming up. I also live on my own so I have the usual expenses of rent, credit cards, etc., that were due throughout the month. The job that I was commissioned to do was a multiple day shoot that would require renting a car as well as food expenses and more. Normally I would charge the majority of things to my credit card, spending cash when needed, and as cheques come in, I’d pay bills and repeat the process.
As I was anticipating income coming in I had made several large purchases. I then continued with my usual spending habits. I was commissioned the job mentioned above so I had to pay the associated expenses. At this point my credit card was approaching its limit so I started spending from my chequing. Up until this point, there is no real issue.
Then the postal strike is announced, meaning that the money I was counting on coming in to cover bills and expenses is most likely in the mail system and will be delayed for an undetermined amount. Because I was betting on that income, my chequing account is getting low forcing me to transfer money out of my savings.
At this point I have no credit or savings, I have outstanding assistant invoices to pay, as well as rent, my credit card, and day to day expenses. Luckily the strike has now ended and I have gotten some cheques, narrowly avoiding going into debt. So what did I do wrong and how can I avoid such situations in the future?
There were three main mistakes that I’ve identified – having a low cash on hand, not keeping savings up, and early spending.
Low Cash on Hand – Cash on hand is what is required for operating expenses such as assistants, car rentals, meals and more. My first mistake was not keeping enough cash in my chequing account to meet these expenses as they occurred.
Low Savings – I had used part of my saving several months ago and hadn’t built them up again to a healthy level (roughly two months of expenses for me). Thus, when I needed extra cash, it wasn’t there.
Early Spending – I had started spending a large part of the income that I hadn’t actually received yet, so any delay in receiving it became a problem.
The Solution (moving forward)
Moving forward, I will first quickly rebuild my cash on hand and fill up my savings. This shouldn’t be too difficult because of the delayed cheques coming in. Going forward I will keep the same amount in my savings (two months of expenses), but my new standard for cash in my chequing will be Rent + Credit Limit + $1000. That should be sufficient for day to day expenses as well as any surprise expenses that result from new work. Next I will stop making large purchases on predicted income (even billed income), I don’t think this is ever a good idea as you never know what will happen.
Please note that this is a personal experiment / case study. We are not in any way authorized to give financial advice (to be honest, most people who claim they are aren’t either). If you’re interested in personal finance I recommend the book I Will Teach You To Be Rich, it has a ridiculous title and is a no bullshit guide to managing your money.
Did the postal strike affect your finances? Please let us know in the comments.