Photo by Bich Tran from Pexels
“If you don't know where you are going, how will you know when you get there?”
― Julie Morgenstern, Organizing from the Inside Out
As we approach the next financial year, independent professionals out there may be setting and reviewing their financial goals for the new year.
Most of us say to ourselves, “I want to earn X”, and the figure is usually calculated by looking at our monthly expenses and arriving at a ballpark annual figure. I think it would be better to ask ourselves “How much do I need to earn?” and consider every goal, wish and aspiration, short term and long term. As tedious, and possibly soul crushing, as the exercise may seem, it’s an excellent way to get real about your finances. It also provides better focus for the next year.
To help you arrive at that annual need-to-earn figure, I’m sharing a spreadsheet with you that has been adapted from Jake Poinier’s calculations in his book The Science, Art and Voodoo of Freelance Pricing and Getting Paid. The beauty of the spreadsheet is that once you arrive at an annual figure, it helps you break it down to a daily figure and the ideal rate per hour.
The sheet is completely flexible. I have added formulae in some cells, but nothing is locked. It includes various expense heads, but you can add anything else you think of. You can feed in monthly figures, which are then totaled to annual figures, or annual figures directly. You will see that it goes into a lot of detail – budgeting for monthly household and business expenses as well as for vacations, training, insurance and retirement. The totals for each month help you plan for a surge in expenses at certain times of the year.
Once you fill in all that you want to, you have an annual figure that you need to earn and with a few more inputs and calculations you will arrive at your rate per hour.
If you have a higher annual figure in mind, I have also included a cell where you can punch in a dream annual figure. The sheet will then calculate your rate per hour at the higher annual figure too. So you now have a range for your rate per hour and can quote as you deem fit within that range.
Let me warn you that when you complete this sheet for the first time, you may find the annual figure daunting. Shrug that feeling off. The advantage is that you know where you are going and the rate per hour helps you keep the target in sight. In a way, the sheet helps you make an informed decision about the work you take on and the clients you work with.
Finally, please note that the cells with ‘0’ have formulae punched in. If you make any changes manually, please cross-check the formulae. In any case, it’s best to cross-check all calculations when you have completed filling in the sheet.
You can write to me if you have any questions. All the best for the next financial year!
Regards,
Michelle