How to Get Out of Debt on a Freelance Salary

The number one problem most freelancers have is that their income is inconsistent. This makes it hard to plan. As a freelancer with some financial savvy, I've noticed some things that have helped me keep the debt monster at bay.

NOTE: Notice I wrote "at bay"; I haven't completed escaped him, but he's not an all-consuming threat either.

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1. Get a job you hate: Why? A little story:

Jerry Seinfeld said that he sold light bulbs before he became rich and famous. He said he hated it, but he did it because it made him work that much harder on his comedy. His thinking was, "The sooner I succeed, the sooner I could give up selling light bulbs.

I thought this a brilliant concept.

Moral of this story: Complacency kills and this is kinda like reverse psychology. Imagine if you hated what you were doing. You'd work much harder to not have to do it and put every penny you earned towards the debt you owe so you could quit - as soon as possible.

2. Save ONLY $1,000: One of the things I learned from Dave Ramsey's book, The Total Money Makeover, is to have an emergency fund.

Hold on, don't tune out. This is not having 3-8 months of expenses in the bank, like most financial gurus will tell you. Dave says to start with $1,000. Why this amount, and why is it so radical?

When you hear, save 3-8 months of expenses, most of us turn a deaf ear. If you're struggling just to keep up with the bills as they come in, putting $5,000, $10,000 or more away seems impossible.

But, most of us can imagine socking away a grand.

Mr. Ramsey's theory is that it's the little emergencies that cause us to constantly whip out the plastic and before we know it, we're a few thousand in debt. He says, if you have an emergency fund of $1,000 and the transmission goes on your car, you won't have to finance it with plastic.

You pay cash for it and therefore you haven't created more debt at a time when you can least afford it - when things are going bad.

I'm a big believer in the universe talking to you. Some may call this presence God, Buddha, Allah; whatever you call it, I'm a big believer in a higher power. Around the time I read this, three things happened that added up to almost exactly a thousand dollars.

My car needed new rotors (I still don't know what they are, but apparently my jeep was in bad need of them); my fiance's car needed new tires and the thermostat in our house went kaput - in the dead of winter.

Now, we were lucky enough to be able to pay for all of this without charging any of it, but it didn't come out of an emergency fund; it came right out of earned money, which really put a crimp in the holiday budget.

Moral of this story: Put away funds for Murphy's law because when you least need something bad to happen, it will. Do this BEFORE you start paying off debt. Mr. Ramsey says it kind of inoculates you against ole man Murphy.

NOTE: There is a point where you do build up the 3-8 months of living expenses, but it comes later in his plan.

3. Chunk pay: What I mean by this is, when you get a chunk of money from a project, close your eyes, write out the check and just pay a darn bill.

I know from my own personal experience that when most of us get a chunk of money at one time, we want to treat ourselves a little, pay only what's due (maybe a little more), and "save" a little.

The reason save is in quotation marks is because eventually that gets eaten up by those expenses that we can never seem to account for.

Another of Mr. Ramsey's philosophies is that money you don't have a plan for will find a way to leave you. So, if you know you're getting a check in two weeks for $1,748.32 for a project you just completed, look over your bills and assign a debt to it. While it may bug you to do it, you'll feel so much better once the check is in the mail.

Moral of this story: You can track where your money went; you can see the progress. This is important because when you remember that client who drove you bonkers and the project took you 8 more hours than you billed, at least you can say it was worth it because Visa is finally paid in full.

And you know what, I've taken on projects this year that in the past I would have passed on because I have a goal. Getting out of debt takes laser focus - and it gets addictive. But, since I've been on Dave Ramsey's plan, I've made more progress in three months than I made all of last year - and I'm not THAT bad with money.

I've found that it's those little things that get it in the way of success. By chunk paying, getting an emergency fund in place and doing jobs I don't necessarily like, my debt-free goal is within reach - and yours can be too!

Tomorrow's Post
Debt-Free Living: A Freelancer's Personal Tale of Getting -- & Staying -- There
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