Did you just start your freelancing journey? You must take the necessary steps to manage your finances right from the beginning. Undoubtedly, freelancing gives you the flexibility to choose which projects to work on, what to charge, and when to work, it has some cons in terms of financial independence.
Even though you have regular clients, your freelancing income may fluctuate at any moment. Therefore, you must have an adequate budget to cover the dry spells. And for that, you need to manage your finances.
In this guide, we’re going to share some tested and trusted tips to manage your finances as a freelancer. So, without any further delay, let’s get started.
1. Keep Your Personal & Business Bank Accounts Separate
Most freelancers make this mistake and get into a hassle. When you don’t keep your personal and business accounts separate, you don’t get a clear picture of your finances.
So first, get a distinct bank account for the money you get from your business. It will help you with bookkeeping for all business transactions. You won’t need to spend hours to segregate your personal and business transactions. Moreover, you will be able to manage your taxes better.
As per your convenience, you can open a business account in your existing bank or find a separate bank. However, you must look for the following features while opening a business account:
- No minimum balance
- Fee-free transfer and deposits
- Free mobile deposits
- Freedom to link your bank account with Mint, PayPal, and other online payment options.
Getting a separate business bank account also helps you with obtaining funds from lenders to expand your freelancing business.
2. Create A Solid Budget
Budgeting is an excellent tool to manage your finances. Intelligent budgeting helps you plan out your monthly income and expenses before the month starts. It enables you to see where your earning is going, how much income you require, and how many expenses you can cut out.
Some financial experts advise following the 50/30/20 budgeting method. You can segregate your budget as 50% for necessities, 30% for flexible expenses, and 20% for savings.
Zero-based budgeting is another popular technique to create a budget and manage your finances. As the name indicates, the zero-based budgeting process begins from a “zero base,” and every function within a company is examined for its requirements and cost.
3. Keep Track of Your Finances
Don’t forget your budget won’t help you unless you use it. You must get into the habit of monitoring your cash flow and budget at least once a week. It will help you ensure that you’re not spending more than your earnings.
In freelancing, you might need to make last-minute adjustments to your budget because sometimes clients don’t pay on time. However, with regular tracking of your finances, you can make adjustments for any inconvenience in advance.
Some of the important things you need to look for when managing your finances include:
- How many payments are due from clients this week?
- Do you need to make changes to your budget to accommodate any new expenses?
- Expected income for this month?
4. Raise Your Invoice on Time
Unless you’re sending a timely reminder to the customer, you can’t expect to get paid on time. Always finish your project on time and raise your invoice as soon as you submit your work.
Tell your clients in advance to make payment by the due date. Minimize your “invoice due” time from 30 days to 7 or 10 days. Also, don’t forget to check with the customer payment history before getting hired.
Remember, good clients will have a budget already set up for the project.
5. Manage Your Taxes
Dealing with taxes is a tedious job for most freelancers. Remember, the process of filing taxes can get more complicated when you’re in a hurry. So, manage your finance correctly and file your tax returns as soon as possible. Last-minute filing can lead to various issues, and you may miss out on some critical receipts.
If you’re not sure how to manage your finances as a freelancer, consider working with a tax professional. Even then, you will need to keep track of your earnings and expenses, you won’t be worried about any missing schedules and forms.
However, if you want to do it yourself, you can use your last year’s tax return as a guideline. Thus you will get adequate time to check your expenses carefully and make a fair distribution of your income as savings for taxes. It is recommended to keep 25% of your income as savings for taxes.
The majority of freelancers have to deal with infrequent payment issues at some point. Consequently, they need more savings than anyone else. If you generate 70 to 80% of your income from one client, you certainly need to manage your financial risks. You should keep some money in an emergency fund.
Big freelancing projects can leave you with a lot of cash, but you shouldn’t forget to set aside some money for savings first. Ask your bank if it provides some long and short-term investment plans that have the potential to offer high returns.
Besides this, don’t forget to save some money for retirement as well. In fact, you should treat your retirement like any other bill you pay for. It is a good idea to keep 10% of monthly income safe for your retirement.
Without a solid financial plan, freelancing can be risky. Since freelancers have to cope with issues like scams, delay in payments, etc., savings is not optional for freelancers. You never know, even general expenses such as utility and grocery bills can become an emergency when the funds are not there. So, manage your finances right from the beginning of your freelancing career.