You couldn’t pay me to own a yacht, but they do look real fancy.
I recently read MONEY Master the Game: 7 Simple Steps to Financial Freedom
My first mistake: investing in bulk Scrabble tiles.
This post is difficult to write — I’ve been putting it off. It’s embarrassing to talk about mistakes I’ve made that have lost me 20%, 50%, or 100% of my principal. But I feel a sense of responsibility to share the gory details of my own foolish, greedy, and sometimes reckless attempts to grow money.
Here’s what I hope to accomplish by writing this post:
I’ve been fascinated by investing since the day I learned at a young age that a bank would give you money (interest) for your deposits.
Since then I’ve made a some good financial decisions and some bad ones. The bad ones mostly all fall into the “classic” mistakes that inexperienced investors make, though a few of my mistakes required ingenuity and above-average foolhardiness.
Without further ado here’s my list of “greatest hits” investment mistakes, for your edification and entertainment. Maybe you can avoid some of the traps I waltzed into!
Lance at the ready!
I’ve worked as an independent contractor for about twenty years (with a few breaks to try out working full time, or not working at all). I always came back to “freelancing” (I love that word — it implies you’re in armor, on your trusty steed, ready to ride into battle in exchange for a full coin purse) because of the flexibility, high compensation, and variety.
Blog reader Marcin asked awhile back for insights on freelancing. I’ve done my best to compile a few insights below. Some of these came easy, others “the hard way.” My own field is database application development, but I think the ideas will carry over to most types of freelance work.
1. Go Where the Work Is
It doesn’t make sense to take on the uncertainty of working for yourself unless there is work to do. Generally it’s not a good idea to develop a specialized skill set and then spend time searching for a where to apply that skill (and try to get paid). Successful freelancers find the work first, then find a way to do it (learning new skills as needed).
I think many freelance careers get started with a regular job. If you and your current employer can come to an agreement — specific work for specific compensation — it may benefit both of you. You’ll gain more time, more freedom, and higher hourly compensation. Your employer stands to pay less tax, and less money overall to retain your specialized skills.
2. Your Client’s Success = Your Success
Help your clients succeed. Own their problems and provide solutions. If you adopt this attitude, your clients will come to trust you and depend on you.
3. Underpromise and Overdeliver
Build “buffer time” into your estimates and quotes, both in terms of billable hours (or days) and actual time. What initially sounds easy invariably isn’t — if the work were easy they wouldn’t be paying you good money to do it. Expect hidden complexity, additional requests not included in the original specification, and unanticipated problems, all as a matter of course.
Once you’ve underpromised, work hard to come in below budget and ahead of time. Once again this will build trust in the relationship and you will come to be seen as reliable and dependable.
4. You’re only as good as your last job.
If you blow it, don’t expect to be hired for the next project. As a freelancer, you’re free to say yes or no to both projects and clients, but so are your clients. Don’t expect loyalty.
So try not to blow it. Come through for your clients. Deliver results, not excuses!
That said, you might get fired, and then rehired, and never know it. If you mess up, salvage things as best you can and don’t burn any bridges. You might receive a call in a year or two, when your client realizes you didn’t do such a bad job after all (maybe they tried hiring someone else who did an even worse job).
5. Try to maintain at least five active (or semi-active) clients.
Usually one or two clients will take up the majority of your time. But invariably, even if you have been delivering quality work, things will slow down. Maybe your main contact at the organization will go on vacation, or get a new job. Maybe your client will switch technology platforms, or business focus, or even move operations to a different city. Expect change.
The only way to have a steady flow of work as a freelancer is to reach “critical mass” in terms of the number of clients you support. This will require you to be able to handle multiple simultaneous projects and “crunch times,” but it will provide security in terms of income flow.
6. Expect your clients to mirror your behavior.
Your clients will probably mirror whatever standards you set in terms of communication style and habits, so consciously set a standard you are comfortable with.
For example, if you don’t like working at night, don’t call or email your client (or respond to emails or calls) after 5pm. They’ll quickly get the message.
When I communicate with a tone that is friendly but semi-formal, my clients respond in the same way. I prefer it when communications are concise, clear, and specific, so I apply those standards to my own communications and generally find them mirrored back.
7. Don’t tolerate abuse.
One of the joys of working for yourself is that you never have to tolerate tyrannical or even unreasonable behavior. This has almost NEVER been an issue — I really like the vast majority of my clients — so when recently someone associated with one my clients was unreasonable and rude during a phone conversation, I was genuinely surprised.
I resolved never to speak with that person on the phone again. I expressed this intention to my client and they were 100% supportive; it turned out there was no need for the two of us to directly communicate. Problem solved.
Very rarely you may find that you can’t tolerate the communication style or demands of a client. In those cases you can “fire” your clients, or explicitly state your communication requirements and allow your client to either conform or find someone else to do the work.
8. Understand and master your internal monologue.
It’s likely that as a freelancer there will be times when you feel confused, lost, and overwhelmed. This could be a result of taking on more work than you can handle, encountering difficult problems, asymmetrical expectations, or communication breakdowns.
At times like these, don’t talk yourself into a pit of despair. Problems feel unsolvable until you solve them (and then, with hindsight, you usually realize they weren’t that hard).
Use language to reduce the intensity of your emotions, when necessary. Why not consider an “impossible” problem to be “a tad challenging”?
Usually, when you feel overwhelmed, you need one of the following:
Try to avoid words like “impossible” and “can’t”. Instead, look for ways to deliver value to your client. And remember most clients will be open to alternate solutions and unconventional approaches as long as they work.
9. Bill fairly (fair to both your client and yourself)
Your client should have the experience of getting good value for the money they pay you. That feeling is more important than the actual amount of money, so make sure they get it. Regardless of how many hours you put into the project, the client’s feelings about the end result will have more to do with:
Your clients will feel much better paying $10,000 for a product and process that feels high quality than $5,000 for a difficult process and a shoddy deliverable. Fairness in your client’s mind corresponds to value received, not the actual amount of money.
The amount you bill should be fair to you as well. As a freelancer you will be paying for things that most regular employees have covered or subsidized (health insurance, self-employment tax, savings plan, and so on). Of course you need to consider what price the market will bear, but don’t charge too little for your services.
10. Don’t disregard “small” clients
Make sure you maintain your high standards for quality at all times, even for “small” clients. You never know when a “small” client might turn into a tsunami of work and money. The tiny project you’re working on might only be the tip of a gigantic iceberg.
11. Love What You Do
Even more important than “doing what you love” (though I’m not knocking it) is loving the work you do have.
But how?
For most people, helping people feels good. And getting paid well to do it doesn’t hurt. So that’s a good start. Deliver great value to your clients and feel good about it!
Often the “bad” parts of a job can be eliminated by simply choosing to do things a different way. I have a “don’t” list that I’m strict about. I just avoid the following, because I’ve learned over times these are the precise situations and circumstances that make me miserable (and life is too short to make yourself miserable on purpose).
These rules aren’t hard and fast — sometimes I’ll do some work in the evening for a client if it will really help them out. But there’s no reason to work under poor conditions when you have the choice not to.
So avoiding pain is half of the equation. The other half is actively enjoying the work. I find that I consistently enjoy my work more when I do the following:
Remember that deferring happiness until you are successful is always the wrong strategy. When you succeed, your mind will simply pick a new success target, and you will be stuck deferring happiness forever!
Instead, find ways to be happy moment to moment, in the work. Feeling good will increase your effectiveness and chances at success.
Square One
If you are just starting to think about a freelance career, I would recommend this post from Ramit Sethi. Ramit makes the excellent point that everyone has marketable skills, and he provides some tools to help you think flexibly about your own skills (which you might take for granted … it’s easy assume that just because you know how to do something that everyone else does too).
I hope this list was helpful for you freelancers and aspiring freelancers. Please share your own insights below!
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Crazy money.
Sam Polk’s piece in Sunday’s New York Times chronicles his journey from greedy derivatives trader to nonprofit founder. It brings the concept of “wealth addiction” into the mainstream.
Is “wealth addiction” really an illness? Left untreated, the accumulation of wealth generally doesn’t lead to ruined life, or death. But Polk claims that this malady tears apart the social fabric, and hurts us collectively. Polk writes: “Wealth addicts are responsible for the vast and toxic disparity between the rich and the poor and the annihilation of the middle class.”
I think it’s valuable to consider the psychology of the ultrarich. What drives their behavior? Maybe it’s important to call out extreme asset accumulation for what it is: pathological fear-based hoarding, a scarcity mindset in the midst of abundance.
But even more important is to examine the system that enables such behavior. How do the ultrarich accumulate so much wealth, and hang on to it? Corporatism enables such behavior, with four simple methods:
We aren’t going to address extreme income inequality by rehabilitating Wall Street traders one-by-one (or by waiting for them to become moderately enlightened and drop out of the rat race). We’re going to fix radical income inequality with a return to historical, more sensible progressive taxation, intelligent reform of the corporate charter (California’s “Flexible Purpose” and “Benefit” corporate structures are a good start), restricting corporate access to lawmakers, and support for independent media.
Four causes, four solutions. Questions? Difference of opinion? Please comment below.
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