Freelancing is a rapidly growing industry in today’s world of business. Its popularity is gaining momentum due to its flexibility to freelancers. Freelancing offers freedom of choosing what to do, the time you find convenient for you to engage yourself, the day you feel like to work, the amount to charge for your services and much more. It’s very remote.
Freelancing being more advantageous, finances tend to challenge its growth by hitting those who are beginners and also those who at times choose to freelance and later live hoping to come back again. Freelancers do not have steady paychecks or employment benefits. Therefore, due to its unpredictable delivery, you will need to strictly and carefully manage your funds just in case there arises an unforeseen collapse.
Being a freelance beginner, or you have been in the industry for an extended period, below are tips that briefly introduce you to financial management as a freelancer.
Separate Personal and Business Finances
Separation of the two accounts is a very fundamental approach towards tracking the business progress. With this, you cannot confuse your expenditure and income calculations. You’ll be likely to note when your business is not making a profit. Clean record keeping will enable you to be in a position to calculate the tax you are expected to return because freelancers don’t pay taxes in the traditional sense. It’s a good approach to keeping separate financial records; this marks a good beginning of monitoring and evaluating your business progress.
Create and Follow a Budget
Freelancing income is not consistent. Due to this aspect, creation and close monitoring of business budgets can be a very big challenge to freelancers though it’s possible. Basically, monthly earnings always will differ and will never be the same. Failure in a single month does not predict the failure or success of the following month. But on an average basis, you can draw a working budget depending on each monthly income. Once you’re in a position to calculate each month’s income, you can make it develop your business budget for the money you already have earned. Make sure you’re informed about the tax that you’re supposed to deduct from your earnings before drawing the budget.
Pay Yourself First
Many of the financial experts will always brief you on this advice as freelancers. Making sure that you value your time and effort towards the business is good and logical. Always taking a portion of the earnings for yourself. Many of the freelancers don’t find paying themselves first as a healthy deal towards their businesses. Paying others before considering yourself is said to be a good idea to create relationships with your workers. But on the other hand, paying others before you pay yourself can result in adverse financial consequences. It’s, therefore, healthy to pay yourself first to help simplify the budget and avoid financial stress which might arise as a result of running short of funds.
Have Money Set Aside in an Emergency Fund
As a freelancer, your income is open to unexpected expenditures anytime. This is a clear signal to guarantee the prioritization of emergency funds. Again, freelance business income is not predictable; having an emergency fund saving can keep your finances more secure from depletion. It’s, therefore, a good measure to have approximately emergency funding which can cover six months regardless of your financial expenses.
Save for Retirement
Retirement savings are necessary for everyone regardless of your occupation. Being a freelancer, it can be challenging to enroll in a retirement plan through it’s beneficial to you. Freelancers have multiple options which include the individual retirement account (IRA) or solo 410(k).
Continue to Pay Off Debt
Due to inconsistencies with freelancer’s income, there arise multiple uncertainties about their future income. They aren’t sure of what their business may give back in the following month, and some even hesitate to spend their income on debts. They always like to keep the money where it can be easily accessed in case there arise financial difficulties with the business. Once you happen to have a debt with anyone(having Licensed Money Lender or from lending institutions or assets to support your business) don’t ever try to forget about booking that debt and trying to pay within the timelines set. Even though there might be other priorities for your business as a freelancer, you only need to consider continuing to pay debts. Paying debts raises your credit score, and a notable loan interest decrease will be realized.
Don’t Forget About Insurance
Due to private operations, freelancers are not able to benefit the employer-sponsored insurance plans. It’s, therefore, their responsibility to protect themselves through acquiring insurance covers. Once you stay reluctant to join any insurance company, there are financial risks that you really expose yourself and your family to, such as the medical bills. It’s, therefore, a good measure to consider getting insurance coverage. Including your family and assets that you have. Insurance is one of the best options for securing your finances despite the minimal expenses on the coverage.
Set Money Aside for Taxes
Freelance income is not uniform in all months. This makes their tax calculations become more complex because they are mandated to pay tax on a quarterly basis, unlike the traditional employee whose tax is automatically withheld from their income. Because of this quarter payment schedule, it’s always a good idea to keep aside some of the income earned as a freelancer for the purpose of paying taxes. The creation of two business accounts is one of the best approaches which will help you to keep aside cash to cater to tax. One of the accounts will serve as a freelance account where business money is kept. Once received, you will deduct some and transfer to the other account to pay for your quarter tax.
Have Confidence in Your Finances
When working as a freelancer, you will always have the surety that not every month will be nice to your business. This is to mean, your income finances will never be predictable until the end of the month. Although, with confidence and self-trust, you can drastically increase your earnings. This is so when you choose to have wise business moves and considering responsible business practices. Through this, you will have a successful mastery of your finances. That’s then you’ll be in a position to enjoy the fruits of being a freelancer.
Being a freelancer, you only have to appreciate your earning scale, consider all precautions that would ensure safety to your business. From freelance, people have made wealth, and it’s, therefore, possible once you respect your relationship with lending institutions by compliance with payments. Have well-kept business records for reference whenever confusion occurs. Track every expenditure and things will fall in place as freelancers.