This post is from staff writer Sierra Black. Sierra writes about frugality, sustainable living, and getting her kids to eat kale at Childwild.com.
It took me a long time to get through The Money Book for Freelancers, Part-Timers, and the Self-Employed. That’s not usually high praise for a book, but in this case I mean it to be. It took me a long time to read because it was so darn useful. I had to keep stopping to go do the exercises the authors suggested. Now my files are organized, my retirement funds are set up, and my favorite bookmark is free to be slotted into the next finance book I read.
Writers Joesph D’Agnese and Denise Kiernan have been freelancing a long time. Along the way, they’ve made all sorts of mistakes with their finances, but they’ve also gotten to a place where they have a stable, smooth financial system that works. As journalists, their work has appeared in The New York Times, The Wall Street Journal, Wired, and a dozen other places. Now they’ve turned their considerable writing talents to sharing their financial expertise. It’s a winning combination.
Freelancers are People Too
The basic principles of money management are the same, no matter which book or expert presents them. What changes is how the information is presented, and how likely you are to be motivated to follow the advice. The Money Book for Freelancers is special because it frames simple money management wisdom in a way that makes sense for freelancers and contractors.
Independent workers have special financial needs. It was a huge help to me to see them laid out in black-and-white. I knew abstractly that I should be saving for retirement, for example. Now I know the details of an SEP-IRA, how it differs from a Roth IRA, and why a self-employed person can benefit from having both accounts. I now have a percentage of my income set aside for retirement each month instead of a flat dollar amount.
The beauty of The Money Book for Freelancers is the organizational system it brings to sound money principles. The authors advocate a system of dedicated bank accounts very like the one I’ve been using for the past year. (J.D. uses a system similar to this, too.)
To whit:
- You want one account at a local bank that you use for your deposits, spending, and daily cash flow.
- You have savings accounts dedicated to particular goals that you keep in a high-interest savings account at an online bank.
- The core of their system is a Holy Trinity of Savings Accounts that includes an Emergency Fund, a Tax Account and a Retirement Account.
For most people at a traditional job, the employer handles the bookkeeping related to taxes and retirement. You may want to add additional retirement funds like a Roth IRA to your retirement portfolio, but at its most basic, retirement accounts and taxes are handled by your company. Doing it yourself isn’t that complicated, but it can seem intimidating. If you’re starting out like I am, it’s nice to have someone hold your hand through getting set up.
The other great thing about The Money Book for Freelancers is the writing style. D’Agnese and Kiernan are like personal trainers for your financial life. They’re constantly cheering you on to stretch your abilities and resources, while candidly holding you accountable for your choices. Whether you freelance or not, their attitude is refreshing. If you do freelance, you’ll likely find their life lessons and anecdotes eerily familiar.
Keep It Simple
The weakness of this book is its authors’ love of complexity. They often recommend multiple accounts in places where one would do. For example, harkening back to the example above, they recommend two or three retirement accounts for each self-employed worker: an SEP-IRA that functions a lot like a 401K, a Roth IRA, and a taxable brokerage account. For most of us, that’s overkill.
I make a decent salary freelancing these days. Even so, if I succeed at saving 10 percent of my income for retirement this year, I won’t save more than the $5,000 I can put into a Roth IRA. There’s no reason for me to maintain other accounts unless my income and savings jumps to a point where I’ve capped out my contributions to the Roth. I really don’t need an SEP-IRA, and won’t until my income is double my current one. While a lot of freelancers make enough money to worry about SEP-IRAs, most people are probably served just fine by a Roth IRA, and maybe a traditional IRA to pick up additional retirement savings in a good year.
Likewise, the authors’ focus on saving for retirement before paying off debt probably means paying more interest over the long term. Yes, it’s good to establish good habits. Freelancers especially need to rely on their own savings practices. No company pension will save you if you screw it up. But saving up a big emergency fund and a retirement nest egg while you’re recovering from credit card debt can be penny wise and pound foolish. A lot of pounds of foolishness, depending on how much debt you have and what interest rates you’re paying. I’ve recently shifted some of my own debt snowball to savings, but my remaining loans are all very low interest (under 5%), and I’m willing to pay a little more interest in exchange for building up a secure emergency fund.
The Bottom Line
I’d like to see this book take a somewhat more streamlined approach to financial savvy. If you’re self-employed, especially if you’re just starting out, there’s plenty of good in here. It was well worth the read, and I got a lot out of the exercises. I’d just recommend it alongside another basic money book like J.D.’s Your Money: The Missing Manual or Dave Ramsey’s The Total Money Makeover.
Probably the ideal system for any individual will be a hybrid of what various experts offer. D’Agnese and Kiernan have some wonderful ingredients in their soup, but don’t follow the recipe blindly.
The Road Out of Debt: Bankruptcy and Other Solutions to Your Financial Problems by Joan N. Feeney and Theodore W. Connolly
You've read stories of people becoming debt-free. In personal-finance blogs, the stories are always ones of debt problems overcome through hard work and frugality. Sadly, in the real world, that doesn't always work. For reasons like illness, divorce, job loss, economic downturn, business failure, natural disaster, war — some debts entered into in good faith simply cannot be paid back. (See also: CitiMortgage Told Me to Default on My Loan)
Feeney and Connolly's new book is about how to find the dividing line between these cases, and what to do once you know which side you’re on.
Money-Management Skills
The authors provide a good short course in money management much like you’d find in any personal finance book or blog — how to budget, how to cut expenses, and how to take control of your finances. Then the book starts talking about debt — mainly about the many, many ways to use debt unwisely. In particular, they’ve got a great chapter on the sort of debt that people with financial troubles turn to in a usually futile effort to stave off financial catastrophe for one more month — payday loans, car title loans, pawn shops, loan sharks, etc.
Even before that, they provide some basic advice on negotiating with your creditors. Especially in the world of finance as it is today, there are plenty of people who could actually fulfill their obligations — except that the creditors have written rules that let them lard up a debtor’s obligations with late fees and penalty interest rates. A knowledgeable debtor with good negotiating skills can often cut through those problems and get their obligations settled reasonably cheaply.
One bit in that section that I particularly like is on the psychology of debt collectors: Some will browbeat you, some will humiliate you, some will pretend to be your friend — but however they act, they’re all just trying to get as much money from you as possible. They don’t care what other debts you have or whether you can support your family. If you don’t understand this — if you allow yourself to imagine that the ones who act like friends are actually friendly — you’re going to be less successful in your negotiations. (I talk about the same psychological issues in my post Don’t Treat Businesses Like People.)
The authors provide some useful advice on seeking help (credit counselors and the like) if your financial problems are beyond what you can manage with those basic skills — and about avoiding the scams that often masquerade as help for people with debt troubles.
Sometimes, even with help, debt problems cannot be overcome. Specifically, if you can’t cover your minimum expenses plus interest on your debts and have money left over to pay down the principle on your debts, then you're over the line. Once you're in that situation, your financial situation can only get worse — your debt burden will rise every month, even if you don't borrow any more money.
When to Consider Bankruptcy
If you could support yourself — pay for your family’s shelter, food, and clothing — except that other obligations drain away more than all the rest of your money, then it’s time to consider bankruptcy.
Even if it’s time to consider bankruptcy, it may not be the best choice. Some obligations (child support, student loans) cannot be wiped out in bankruptcy. Alternatively, if you can’t even afford the necessities, then your household is not a viable economic unit and bankruptcy won’t help.
The core of the book is the information you need to figure whether bankruptcy is worth considering — and the information to consider it and make an informed decision.
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