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November 22, 2022

Inflation: What It Means for Freelancers and How to Weather the Storm

Costs are rising, but are your rates too? Here's how to handle inflation without going broke.

It’s time to address the 🐘 in the room: inflation. You might’ve seen it in the headlines, noticed it in your bank account or had some very vivid nightmares about it. 

And it’s true: we're currently in the midst of a global inflationary trend, which means the cost of living is on the rise. 

Unfortunately, many freelancers make the mistake of thinking that their own services aren't impacted by inflation. The truth is, if you don't adjust your rates accordingly, you could end up putting a serious dent in your budget. 

In this article, we'll explain what inflation is and offer some tips on how to navigate this economic crisis. From making a solid budget to keeping tabs on your income and expenses to negotiating higher rates, we've got you covered. Read on for everything you need to know about inflation and how it affects freelancers.

What is inflation anyway? 

Inflation is an economic concept that refers to the overall rise in prices for goods and services. In other words, when inflation is high, everything becomes more expensive. This includes things like groceries, gas, rent, and yes - even freelance services.

How much inflation are we talking?

Inflation in the eurozone hit a new record of 8.1 per cent in May, up from 7.4 per cent in April. Spain hit a record from 1985 in June, with a surge to 10 percent.

So what?

So, a lot! Your money becomes worth less, and everything becomes more expensive. You’ve probably noticed your energy and gas bills going up, but it’s also happening in supermarkets and other stores.

How does inflation affect freelancers? 

If you don't adjust your rates to account for inflation, you could find yourself struggling to make ends meet. After all, your costs of living are going up right along with everyone else's - but your income isn't necessarily increasing at the same rate. That's why it's so important to keep tabs on the current rate of inflation and make adjustments to your rates accordingly. Otherwise, you risk seriously damaging your bottom line. 

In Spain there is no solace whatsoever. Social security fees do not budge and don't depend on how much you make - and are expected to rise drastically over the next few years, hitting freelancers even harder. Inflation or not.

What can you do?

Don’t wait for the storm to pass. This could take awhile, so thinking about securing your finances is important. Here’s what you can do right away.

Make a budget and stick to it

Racking your expenses is always a good idea - but it's especially important during periods of high inflation. By creating (and sticking to) a budget, you can ensure that you're not spending more than you can afford. 

Speaking of budgets, now is also a good time to start tracking your income and expenses more closely than usual. This will help you get a better sense of where your money is coming from - and where it's going. 

With our (free!) app, you get a clear overview of what’s coming in, where tax is going and what social security payments are sneaking up on you. This will help a great deal in keeping an eye on your funds. Try it here! 

Raise your rates

When’s the last time you raised your prices? Remember that newsletter a few weeks ago where we gave you tips on how to do that? Now’s the time to make a move. 

Inflation largely hurts those in the ‘fixed income group’, because employers don't throw out pay rises with inflation. So don't make yourself part of that group by not having a price strategy in place. 

6 out of 10 freelancers have already raised their prices. If you’re part of the other 4, it’s time to talk to your clients. 

And you’re in a great position to do so: most businesses are struggling to fill in positions permanently, so there’s room for negotiation when they hire freelancers.

Level up the way you do business

Making more money doesn’t always mean you have to work a lot more extra hours. By outsourcing additional services, you can still catch a nice commission. 

Let’s say you’re a freelance copywriter, and know someone who rocks at SEO, you can partner up and sell bigger packages together. Being a one-stop shop for clients is extra valuable, so you could charge more.

Build solid client relationships

You can use all the security you can get, so make sure you keep your friends close, but your clients closer. Retaining clients is all about building strong relationships (and delivering stellar work). Here’s how we’d do it:

  1. Anticipate issues before they happen. If you see an opportunity to level up during your work, don’t be shy and propose it! Always let them know what’s in it for them.
  2. Show off your work: it doesn’t just give future clients an idea of your capabilities, but also makes your current customers feel extra loved.
  3. Ask them what their next steps are. It can just be a friendly convo, not a hard sales pitch. But show interest and wherever possible, give advice!

There’s more to it, so head over to the full newsletter on this topic.

Get all the deductibles you can

You can’t fight inflation, but you can be smart about the money you can save. Here are some surprising things that you might haven’t been deducting from your taxes:

  • A percentage of your home utility services: if you work from home, you can get a 30% deduction on utility expenses such as water, electricity, or your phone bill. But, this deduction only applies to proportionate "office space."
  • Health insurance costs: you can reduce your tax base to € 4,500, depending on the investment made on private health insurance, which is considered a deductible expense for the self-employed.
  • Your phone bill: This only applies if you have a work-related phone number. 

 Check out our cheat sheet with all the deductibles you’re entitled to claim!

Inflation may seem like an abstract concept - but for freelancers, it's very real indeed! If you don't take steps to account for rising costs, you could find yourself in hot water financially speaking. And not the nice hot spring kind. If you want advice, check out our accounting service.

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