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If you are getting into the world of freelancing, you have a lot to think about.
Freelance careers may not attract the highest income, but they come with benefits like flexibility and independence.
One of the biggest challenges for freelancers is money.
Many of them have trouble managing their finances and adopting healthy spending habits.
Here are a few finance and accounting tips for freelancers to check out.
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1. Use Online Bookkeeping Software
With freelancing, the harder you work, the more you make. If you can’t keep track of your finances, you may be unable to make the most of your earnings.
Since it may be difficult to do that manually, consider using online bookkeeping software. There are plenty of free and effective software options to help you.
They can connect to your bank account and help you determine how your transactions happen every day. You should be able to track your bank transfers, payments, and all other important financial movements.
2. Save Money to Take Care of Emergencies
This is one of the most essential tips to keep in mind.
As a freelancer, you need an emergency fund because your job isn’t secure. When you least expect it, you may find yourself without a stable source of income.
No matter how long you’ve been a freelancer, the risk of losing employment is always high.
You should be able to support your lifestyle and take care of emergencies like unexpected trips and health concerns. Take out a percentage off your monthly earnings and put it away.
Stay disciplined, and you’ll be able to get out of difficult situations even when you are out of work.
3. Work On Long-Term Projects
When your freelance career is just taking off, you may not have much experience. You are likely to settle for small, short-term projects.
Long-term projects are a lot harder to come by. Although short-term goals are perfect for gaining experience, they aren’t very profitable, and you may have trouble making a substantial income from them.
One of the best ways to get long-term income is by asking your clients the right questions. After completing a project for your client, ask if they have more work for you. Just because you have completed a project doesn’t mean that the client won’t have any more work.
It is a win-win situation. You get to work with someone that you already know, and they have their project handled.
Apply for as many jobs as you qualify for, and don’t be afraid to work in areas that are outside your comfort zone.
4. Set a Budget
Having a budget is very important. You should have a clear idea of how much money you’ll be spending and what you’ll be spending on all through the month. Budgeting is the foundation of managing your finances. Without a clear and detailed budget, you’ll find yourself splurging on unnecessary purchases.
The most important things to include in your budget are:
- Your travel expenses
- Your food expenses
- Monthly bills
- Unexpected expenses
No matter how big or small your income may be, budgeting is essential. The organization helps you distinguish the most important expenses from unimportant ones.
5. Space Out Your Spending Through the Month
Start spacing out your spending through the month to keep track of your finances better. While this tactic can be a bit difficult to understand, it is easiest to implement.
Space out your spending to match your monthly budget. If, for example, you have 400 dollars to spend on groceries, you can space your spending by dividing the amount into one weekly grocery run. You can buy everything you need for the week.
This will not only help you think more clearly about your purchases. It will also ensure that you have some time between shopping for certain things. It can help you make better shopping decisions.
6. Get Accounting Help
Consider seeking accounting help if necessary. The business part of freelancing can be difficult. Tracking your contracts, tax responsibilities, overdue payments, and invoices can be hard work, and you’ll probably need help at some point.
Luckily, you can always seek professional help. The right ones will provide you with the tools you need to stay on schedule and remain compliant.
During tax season, you’d be wise to enlist a professional accountant. They will ensure that you make the most of your deductions and fill out the appropriate forms correctly.
7. Always Pay Your Taxes On Time
Another critical financial tip for freelancers is how to pay taxes as a freelancer on time. The money going to your taxes should be from your business account and not your personal account. Remember this as you’ll need to save money for tax.
By managing your obligations on time, you’ll be in better control of your finances and time. It also gives you a general sense of satisfaction. An app of your choice will help you take care of taxes on time.
8. Use a Milestone Payment System
Consider working with a milestone payment system.
When working on large projects, for example, the client may need to submit a certain amount before you go on with the rest of the project. They can agree to pay a certain amount every time you hit a milestone.
While this may not be practical with small-scale projects, it works perfectly for long-term projects.
With this payment tactic, you can avoid clients who ignore or delay your payments. It helps you maintain a good relationship with clients without compromising on your income.
9. Handle Your Business Finances
Taking care of your business finances in the same account as your personal finances can trigger many problems. First, organizing and paying your taxes can be a lot more difficult.
Separating your business and personal finances is always a good idea. Use your business account to collect your work pay and pay yourself a salary to your personal account. You’ll not only be able to track your finances but also save money in the long run.
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10. Think of a Retirement Plan
Your retirement plan isn’t similar to your emergency fund. Like with any other job, you should have a clear and well-thought-out plan for your retirement. It should be realistic and consistent with your needs.
If you make the right decisions, you should be able to retire comfortably, no matter how much you earn.
Consider getting insurance for yourself. It should help you get your retirement plan in place. It may also provide you with healthcare benefits hence taking the stress off your back.
You can keep working without worrying about saving more money for your old age.
11. Diversify Your Income
Although getting consistent work from one client can give you much-needed stability, it also makes you overly reliant on one client or job.
Consider diversifying your work across clients. This way, you can build a reputation and client base if you lose one of your big fish.
You’ll not need to scramble to replace your lost income.
12. Plan for Ups and Downs
With freelancing, you are always looking at either a feast or famine. Even when times are great, you’d be wise to prepare for tough times. Every month is different, and you should be able to deal with whatever comes your way.
When you are productive, don’t think of the times as ‘normal’ and the less productive times as ‘abnormal.’ Accept your slower months as an inevitable part of your career and set realistic expectations. You should have an accurate estimate of your average income before making plans.
Think of what you earned in the last year and divide it by 12. That is your average monthly salary. If you have been in the business for a long time, use the last few years to establish an average number. When you have a number, use it to plan for the future.
13. Take Care of Yourself
When all is said and done, nothing is more important than taking care of yourself.
When working as a freelancer, your business becomes an integral part of your life. Unfortunately, many freelancers channel all their money back into the business. They forget to take care of themselves.
Always keep your long-term financial goals in mind. Everyone has financial needs.
You may wish to pay off your debt, buy a few assets, or save for your future. With proper planning, you should be able to accomplish your goals. Here are a few ways to do it:
- Always pay yourself a monthly salary
- Plan for your taxes
- Open different accounts for different needs
- Review your monthly budget regularly and adjust accordingly
Taking care of yourself may not seem like a financial tip. You are unlikely to give your business your best if you are drained or frustrated by your work.
Taking care of your business is essential, but it shouldn’t take precedence over taking care of yourself.
The life of a freelancer is bold and full of surprises. However, it isn’t an excuse to turn your back and hope your finances will figure themselves out. You are a business owner, and the above tips will help you make the most of your money.
Guest Author:
Ken Boyd is an accounting and finance expert at AIS-CPA. He is also the author of several books, including Cost Accounting For Dummies, Accounting All-In-One For Dummies, The CPA Exam For Dummies, and 1,001 Accounting Questions For Dummies.
