Money management for freelancers is one of the most important skills you need to succeed in the gig economy. Freelancing offers many benefits, such as flexibility, autonomy, and creativity, but it also comes with some challenges, such as irregular income, variable expenses, and lack of financial security.
If you want to enjoy the perks of freelancing without worrying about the pitfalls, you need to learn how to manage your money wisely.
Being a freelancer does have its own advantages. Besides being able to set the time worked in accordance with desire, working as a freelancer does look relaxed compared with the job in General.
The Freelancer itself is a profession, where people sell goods, products or services is done individually, and of course earn money from it, or what is known as independent workers.
Many examples of the work as a freelancer. Starting from the web designer, content writer, photographer, social media officer, and much more.
When viewed in terms of its organization, are usually freelancers more of his own work. Despite having assistants, usually only one or two people. Essentially, this work did not have a legal entity like a firm.
However, the shortcomings of the profession as this is the uncertain income. Sometimes, you get a high income. Sometimes, have an income that is mediocre.
To that end, financial management should be appropriate for financial conditions remain healthy. Following this, several ways to Money management for freelancers.
How to Master Money Management for Freelancers
Record the income and expenses optimally.
The first step to master money management for freelancers is to track your income and expenses. This will help you understand your cash flow, identify your spending patterns, and plan your budget accordingly.
As described previously, the income of freelancers did not keep each month. Sometimes increased and sometimes decreased. Meanwhile, spending every month, usually remain the same. Records of income and expenses here intended, so that the income and expenses can be managed properly.
That way, the needs every month can be fulfilled. Estimate how much income you can get and will be used for just about anything. This way is not easy, especially with your earnings are not fixed. However, such estimates have it wrong though, it would be better than nothing at all.
To track your income, you need to record all the payments you receive from your clients, including the date, amount, and source. You can use a spreadsheet, an app, or a software tool to do this. Some popular options are:
- Wave: A free online accounting software that lets you create invoices, accept payments, and manage your finances.
- FreshBooks: A cloud-based accounting software that offers invoicing, expense tracking, time tracking, and reporting features.
- QuickBooks: A comprehensive accounting software that integrates with various apps and services, such as PayPal, Stripe, and Shopify.
To track your expenses, you need to record all the money you spend on your business and personal needs, such as rent, utilities, groceries, transportation, insurance, subscriptions, etc. You can use the same tools as above, or you can use a dedicated expense tracker app, such as:
- Mint: A free app that syncs with your bank accounts, credit cards, and bills, and categorizes your transactions automatically.
- YNAB: A paid app that follows a zero-based budgeting method, which means you assign every dollar a job and track your progress.
- PocketGuard: A free app that analyzes your income, expenses, and savings, and gives you personalized recommendations on how to save more.
By tracking your income and expenses, you will be able to see where your money is coming from and where it is going, and make adjustments as needed.
Create a Realistic Budget and Stick to It
The next step to master money management for freelancers is to create a realistic budget and stick to it. A budget is a plan that shows how much money you expect to earn and spend in a given period, such as a month, a quarter, or a year. A budget helps you:
- Set your financial goals and priorities
- Allocate your money to different categories, such as needs, wants, and savings
- Monitor your spending habits and limit your expenses
- Save for your future and avoid debt
To create a realistic budget, you need to follow these steps:
- Calculate your average monthly income: Add up all the payments you received in the past 12 months, and divide by 12. This will give you an estimate of how much money you can expect to earn each month. You can also use your lowest monthly income as a base, to be more conservative.
- List your fixed expenses: These are the expenses that stay the same every month, such as rent, mortgage, car payment, insurance, etc. These are the expenses that you have to pay no matter what, so they should be the first ones to deduct from your income.
- List your variable expenses: These are the expenses that change every month, depending on your lifestyle, such as groceries, dining out, entertainment, travel, etc. These are the expenses that you have more control over, so you can adjust them according to your budget.
- List your savings goals: These are the amounts that you want to save for specific purposes, such as taxes, emergencies, retirement, education, vacation, etc. These are the expenses that you should pay yourself first, before spending on anything else.
- Subtract your expenses and savings from your income: This will give you your net income, which is the amount of money you have left after paying all your bills and saving for your goals. This is the money that you can use for discretionary spending, such as hobbies, gifts, donations, etc.
- Review and adjust your budget: Compare your actual income and expenses with your budgeted ones, and see if you are on track or not. If you are spending more than you earn, you need to cut down your expenses or increase your income. If you are earning more than you spend, you can save more or spend more on your wants.
By creating and following a realistic budget, you will be able to live within your means and achieve your financial goals as a freelancer.
As a freelancer, have become a reasonable thing, if the revenue generated is not fixed. Can just this month You earn an income. However, the following month, no income obtained. In fact, the income derived each month can be different from each other. It would be better to optimize the income you earn.
Here’s how you can get started by compiling a list of expenses every month. Allocated expenditure for essential needs. Minimize expenses for things that are totally not including needs. Take advantage of the promo, or discount shopping is there to save on shopping expenses.
Select the appropriate project.
It is also important for you to consider. When choosing a job order, you also need to take into account how much of the cost and time needed to do the job. Do not let Your job to work out spending more than you earn income.
Set the scale of priorities.
Because income owned does not always keep every time, You have to give precedence to all basic necessities first. Basic necessities and mandatory, such as water, electricity bills, the cost of meals, and more, you should prioritize first. If You put it off, it was feared the money instead be used for other needs and make basic necessities cannot be fulfilled.
Set aside income.
Always try to set aside income received from any job that you do. The money you can make as a reserve fund, which is used when an emergency condition. It will be better if you distinguish the difference between a savings account and the account of daily necessities, so that later the more easily organize your finances.
Save for Taxes, Emergencies, and Retirement
The third step to master money management for freelancers is to save for taxes, emergencies, and retirement. These are three of the most important and often overlooked aspects of freelancing, and they can make or break your financial future.
Save for Taxes
As a freelancer, you are responsible for paying your own taxes, which include income tax, self-employment tax, and possibly state and local taxes. Depending on your income level and tax bracket, you may have to pay anywhere from 15% to 40% of your earnings to the government.
To avoid a huge tax bill at the end of the year, you need to save for taxes throughout the year. Here are some tips on how to do that:
- Estimate your tax liability: Use a tax calculator, such as this one, to estimate how much taxes you will owe based on your income and deductions. This will give you an idea of how much money you need to set aside for taxes each month.
- Pay your taxes quarterly: Instead of waiting until April to pay your taxes, you can pay them in four installments throughout the year, which are due on January 15, April 15, June 15, and September 15. This will help you avoid penalties and interest for underpaying your taxes, and also spread out your tax burden over time.
- Open a separate bank account for taxes: To avoid mixing your tax money with your regular money, you should open a separate bank account for taxes, and transfer a percentage of your income to that account every time you get paid. This will help you keep track of your tax savings and prevent you from spending them on other things.
By saving for taxes, you will be able to avoid a lot of stress and hassle when tax season comes.
Save for Emergencies
As a freelancer, you are also exposed to more risks and uncertainties than a regular employee, such as losing a client, facing a lawsuit, getting sick or injured, or experiencing a natural disaster. These events can disrupt your income and cause financial hardship, if you are not prepared.
To protect yourself from these unexpected situations, you need to save for emergencies. An emergency fund is a stash of money that you can access quickly and easily in case of an emergency. An emergency fund can help you:
- Cover your essential expenses, such as rent, food, and utilities, for a few months
- Pay for unexpected costs, such as medical bills, car repairs, or legal fees
- Avoid going into debt or using your retirement savings
- Reduce your stress and anxiety
To build an emergency fund, you need to follow these steps:
- Determine how much you need to save: The rule of thumb is to save enough to cover three to six months of your living expenses, but you can adjust this amount based on your personal situation and risk tolerance. For example, if you have a stable income, a low debt, and a good insurance, you may need less than someone who has a variable income, a high debt, and no insurance.
- Choose where to save your money: You should keep your emergency fund in a safe and liquid place, such as a high-yield savings account, a money market account, or a short-term CD. You should avoid investing your emergency fund in risky or illiquid assets, such as stocks, bonds, or real estate, as they may lose value or be hard to access when you need them.
- Save your money regularly: You should treat your emergency fund as a priority, and save a portion of your income for it every month. You can automate your savings by setting up a direct deposit or a recurring transfer from your checking account to your emergency fund account. You can also boost your savings by cutting down your expenses, increasing your income, or using windfalls, such as tax refunds, bonuses, or gifts.
By saving for emergencies, you will be able to handle any crisis that comes your way without jeopardizing your financial stability.
Save for Retirement
As a freelancer, you are also responsible for saving for your own retirement, as you do not have access to employer-sponsored retirement plans, such as 401(k)s or pensions. Retirement may seem far away, but it is never too early to start saving for it, as the sooner you start, the more time you have to grow your money and benefit from
the power of compound interest. Retirement can also help you enjoy the fruits of your hard work, pursue your passions, and spend more time with your loved ones.
To save for retirement, you need to follow these steps:
- Estimate how much you need to save: To do this, you need to consider several factors, such as your current age, your desired retirement age, your expected retirement income, your expected retirement expenses, your expected rate of return, and your expected inflation rate. You can use a retirement calculator, such as this one, to estimate how much you need to save for retirement based on these factors.
- Choose a retirement account: As a freelancer, you have several options to save for retirement, such as a traditional IRA, a Roth IRA, a SEP IRA, a Solo 401(k), or a SIMPLE IRA. Each of these accounts has different rules, benefits, and drawbacks, so you need to compare them and choose the one that suits your situation best. You can read more about these accounts here.
- Contribute to your retirement account: Once you have chosen a retirement account, you need to contribute to it regularly and consistently. You can automate your contributions by setting up a direct deposit or a recurring transfer from your checking account to your retirement account. You can also increase your contributions whenever you get a raise, a bonus, or a windfall. The more you save, the faster you can reach your retirement goal.
- Invest your retirement savings: Saving alone is not enough to grow your retirement fund. You also need to invest your savings in a diversified portfolio of assets, such as stocks, bonds, mutual funds, ETFs, etc. Investing can help you increase your returns, beat inflation, and achieve your desired retirement lifestyle. However, investing also involves risks, so you need to be careful and prudent. You should choose an asset allocation that matches your risk tolerance, time horizon, and financial objectives. You should also review and rebalance your portfolio periodically, and adjust it as you get closer to retirement.
By saving for retirement, you will be able to secure your financial future and enjoy your golden years as a freelancer.
Avoid Common Financial Mistakes that Freelancers Make
The fourth and final step to master money management for freelancers is to avoid common financial mistakes that freelancers make. These are some of the pitfalls that can derail your financial success and happiness as a freelancer, and how to avoid them:
Not having a contract
A contract is a legal document that defines the scope, terms, and expectations of your work with a client. It protects you from disputes, non-payment, scope creep, and other issues that may arise during the project.
You should always have a written contract with your client before starting any work, and make sure that it covers all the important aspects, such as the deliverables, the deadlines, the payment schedule, the ownership rights, the cancellation policy, etc. You can use a template, such as this one, to create a contract, or hire a lawyer to draft one for you.
Not charging enough
One of the biggest challenges that freelancers face is determining how much to charge for their services. Many freelancers tend to undervalue their work and charge too little, which can hurt their income, reputation, and self-esteem. To avoid this, you need to research the market rates for your niche, skill level, and location, and set your rates accordingly.
You should also consider your value proposition, your overhead costs, your profit margin, and your personal and professional goals. You should also be confident and assertive when negotiating your rates with your clients, and be ready to walk away from low-ball offers.
Not managing your cash flow
Cash flow is the difference between the money that comes in and the money that goes out of your business. As a freelancer, your cash flow can be unpredictable and inconsistent, as you may have periods of feast and famine, depending on the demand and supply of your services.
To manage your cash flow, you need to have a clear picture of your income and expenses, and plan ahead for the lean times. You should also invoice your clients promptly and follow up on late payments, diversify your income sources and clients, and maintain a healthy balance between your short-term and long-term projects.
Not separating your personal and business finances
As a freelancer, you are both the owner and the employee of your business, which means that you are responsible for both your personal and business finances. However, this does not mean that you should mix them together, as this can cause confusion, errors, and legal issues.
You should keep your personal and business finances separate, by opening separate bank accounts and credit cards for each, and using them accordingly. You should also track and record your personal and business transactions separately, and use a software tool or an app to do so. This will help you simplify your accounting, tax filing, and budgeting processes.
Not investing in yourself
As a freelancer, you are your most valuable asset, and you need to invest in yourself to stay competitive and relevant in the market. You should constantly update your skills, knowledge, and portfolio, by taking courses, reading books, attending webinars, joining communities, etc.
You should also invest in your health, well-being, and happiness, by taking care of your physical, mental, and emotional needs, such as eating well, exercising regularly, sleeping enough, meditating, socializing, etc.
You should also invest in your brand, by creating a professional website, a portfolio, a blog, a social media presence, etc. that showcases your work and personality.
By avoiding these common financial mistakes, you will be able to improve your financial performance and satisfaction as a freelancer.
Here are some frequently asked questions and answers about money management for freelancers:
How do I file taxes as a freelancer?
As a freelancer, you need to file a Schedule C (Form 1040) to report your income and expenses from your business, and a Schedule SE (Form 1040) to calculate and pay your self-employment tax.
You also need to file a Form 1040 to report your personal income and deductions, and pay your income tax. You can use a software tool, such as TurboTax, to file your taxes online, or hire a tax professional to do it for you.
How do I save money as a freelancer?
As a freelancer, you can save money by following these tips:
– Track your income and expenses, and create a realistic budget and stick to it
– Save for taxes, emergencies, and retirement, and pay yourself first
– Cut down your unnecessary expenses, such as subscriptions, memberships, or impulse purchases
– Use coupons, discounts, or cashback programs to save on your purchases
– Negotiate your rates, fees, and bills to get the best deals
Use free or low-cost tools and resources to run your business
How do I make more money as a freelancer?
As a freelancer, you can make more money by following these tips:
– Increase your rates, value, and quality of your services
– Upsell, cross-sell, or bundle your services to increase your revenue per client
– Find and attract more clients, especially high-paying and long-term ones
– Expand your network, referrals, and testimonials to increase your exposure and credibility
– Create passive income streams, such as products, courses, books, etc. that generate money without your active involvement
Money management for freelancers is not easy, but it is not impossible either. By following the tips and strategies discussed in this article, you can master money management for freelancers and enjoy the benefits of freelancing without sacrificing your financial security and freedom.
If you found this article helpful, please share it with your fellow freelancers, and leave a comment below. Thank you for reading, and happy freelancing!
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