It can be quite easy to lose track of your finances when you’re a freelancer. You don’t get a fixed salary every month. Your income comes from multiple sources. You don’t have a company that automatically deducts taxes and contributes to various funds for you. You are your own accountant, business manager, and financial consultant. You have to watch over your money and do everything yourself.
All these things can make anyone want to sweep it all under the rug, but don’t let yourself get intimidated by the numbers. Take charge of your finances by creating your own financial game plan. The trick is to simply know exactly what you earn and break it down according to your needs and lifestyle. It will take some getting used to, but being able to manage the money you earn will make your freelance venture a truly worthwhile one. Here’s our hefty guide to finance for freelancers.
Take stock of your earnings.
As a freelancer, there will be times when you don’t know when you will be paid, how a check will come in, or where money will come from. Despite the uncertainty, you still need to take stock of your earnings. List down all your sources of income – regular jobs, if any, as well as the projected payments from upcoming projects. Having it all laid out in one place should give you an estimate of how much you earn every month. This will be the basis for all your financial plans.
Take precautions to ensure that you get paid.
Landing new gigs and waiting for the first paychecks can always put you on pins and needles when you’re a freelancer. How will the client pay you for the project? When will you get paid? Bank transfers are tricky to set up especially on an international level. Set up an account with Paypal, Skriller, or any other secure payment facility to make the payment process convenient for both you and your client.
It also helps to set up a milestone payment scheme with an employer before a project begins, since it lets you request advanced payment for the first stage of the project. This should help you avoid the risk of not getting paid after you’ve finished the entire project. Freelancer.com has a milestone payment feature that you’ll get a lot of use out of.
List down your expenses.
It’s hard to get into the habit of listing down everything you spend money on, but once you get the hang of it, it’s practically a walk in the park. Every time you pull money out of your wallet, just list it down. This habit will give you a clear picture of what exactly you’ve been spending your precious cash on.
Use a small notebook for this, or try expense tracker apps like Mint or Toshl. Are you spending too much on drinks after hours and pricey dinners? Are all those mid-afternoon coffee runs putting a strain on your budget? Is your sneaker addiction putting you in the red? You’ll soon realize just how much cash is coming out of your pockets.
Create a budget.
Once you know how much you’re earning and what your expenses are, you can create a budget that suits your lifestyle. Put in your basic needs first – groceries, rent/mortgage, utilities, transportation. Then plot in your other bills, such as insurance and credit card payments, along with your savings for the month. Allot money for the things you want – like a fund for that new gaming computer you’ve been wanting – only after you’ve set aside the required amounts for your obligations.
Having a set budget doesn’t mean you can’t have any fun though. If anything, a budget will show you exactly how much you can live it up without overspending until the next month rolls around. Being able to rest easy knowing that you’ve paid your bills will give you space to splurge a bit.
Track your hours.
Freelancer time is valuable time. When you’re being paid hourly for a project or job, take note of your work times. Each hour means money! Use apps like the Freelancer Desktop App to log your hours.
Pay your bills.
Bills are an unsavory but also completely necessary part life. Forgetting to pay them can wreak havoc on your budget, not to mention cause you a lot of inconvenience in the long run. If you’re the forgetful type, use services like Check – which alert you when everything is due – so you won’t ever miss a bill. Online banking helps as well. Not having to physically submit bill payments will save you a ton of time and effort.
Save for a rainy day.
The freelance industry can be very unpredictable – one day you have a project, the next you don’t – so prepare for a time when you might not have a job to fall back on. Try to have at least three to six months’ worth of earnings safely tucked away to live on in case you lose your job or encounter an emergency. It’s always best to be prepared for anything.
Open separate bank accounts.
Having multiple bank accounts may seem too much, but it will keep you from spending money you want to save for a rainy day. Put your savings into one account, your retirement fund in another, and you’ll find that it’s a lot easier for you to forget that you have money to spend.
Invest in your future.
Plan for the future and consider taking out insurance plans, such as health, disability, life, and automobile. Make it a point to set aside money for your retirement too because no one else will do it for you, and if you have extra money, invest in mutual funds or stocks to get the most out of your precious cash.
Make it a goal to be debt-free.
Believe it or not, some people actually lock their unopened credit card bills in a drawer, hoping it will all go away. It won’t. It’s best to deal with debt sooner rather than later. Try to pay a bit above minimum every time, and you’ll eventually get to the end of it.
Don’t forget your taxes.
Not having an employer to deduct your taxes automatically from your paycheck means you have to do your taxes yourself. Have a set schedule to work on it, and see if you can make quarterly payments so that they won’t feel as heavy as making a yearly one.
Keeping track of your finances and getting the most out of your earnings isn’t as complicated and tough as it looks. Just stick to your budget and live within your means. You’ll find that your hard-earned money can go a long way.