Financial advice for freelancers: Alvin Hall tells it like it is

Words of wisdom from financial expert Alvin Hall. 

Alvin Hall is a talented man who is good with words. He is an author, a radio and TV personality and an art collector. After two of his college friends in finance became extremely wealthy, Alvin asked himself, “What did they learn about money that I didn’t know?” Having had no background in the financial industry, it was his unique ability to translate complex concepts into easily understandable ones that helped him develop a career in the financial sector. Alvin has been hired by top financial institutions and firms worldwide to develop and conduct financial training classes as well as speak on financial issues. He has also written several books covering topics from budgeting to investing. I had the pleasure to sit down with him and discuss his advice on personal finance.

Alvin on… long you should be able to live off of your ‘emergency fund’? (The money you set aside for when everything goes wrong).

The traditional advice is 3-6 months; I say 6-8 months is more like it.

…the best piece of financial advice you have for someone who makes a variable income?

Regularize your income. I have peaks and valleys in my income too. When I get paid, I transfer all of it into my savings account. I then pay myself the same amount of money every month. Essentially I pretend I have a fixed salary and I live off of that, even during a month when I’ve had really good income. Also, I continually play around to see what I can cut back on if I want to save more.

…the worst financial mistakes you can make.

1. Spending your future options, today.

There comes a point in your life where you will need to fund another choice. You need to be able to give yourself breathing room when you pursue that other choice because without it, you will make a ‘panic choice’, which is too often a desperate or bad decision. You need to think, “How much money do I need to reinvent myself?” There’s been three times in my career when business (and cash flow) has taken a severe dive and I’ve had to essentially start over.

2. Not making saving a top priority.

Most people do it as the last thing. They spend and then they see how much they have left over to save. That method doesn’t work when it comes to saving. You have to set a real goal, for example, “How much money do I need to have in the bank in case business goes in the tank?” If you set a number for yourself, you increase your chances substantially of achieving your goal.

3. Spending on what’s hot now and has no value in the future.

This includes buying the hottest handbag, the hottest designer and spending down cash you have on things like expensive cars that only go down in value as the years go by. This also includes charging items to a credit card that you don’t really need that will take you months to pay off while you rack up interest.

4. Not having any mental reference points.

A person who is savvy with money uses mental reference points. For example, if they go to buy a handbag, they stop and think things like, “What percentage of my monthly rent does this bag cost?” That reference allows them to put their spending in perspective. It also helps to remind them of their priorities and the potential sacrifice they are making. “Can I afford to spend four months of rent on a handbag? Does that make sense given my financial needs and priorities?” People who make mental reference points will think about those things.

5. Starting to spend as soon as you get the job.

Some people don’t wait until they have the money in their account before they start spending what will be coming their way. This usually leads them to spending more than they will ever actually have in their account and they rack up interest rate charges on credit cards in the process.

…how many savings accounts a freelancer should have.

Three. Always have a tax account, a short-term savings account (that’s what you use to go on holiday or buy that new pair of eyeglasses), and then a long-term savings or retirement account. When you open these accounts make sure the bank links them all together so you earn a higher interest rate on your savings account balance.

…his final thought for freelancers.

Think about this: “Who is the biggest partner in your business?” It’s the government, whether you like it or not. Always set aside money to pay your taxes! And pay them on time.

To learn more about Alvin’s financial advice, read his book, Your Money or Your Life.

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