How To Manage Your Finances As A Freelancer

As a freelancer, your life is definitely rewarding and flexible but it also comes with its own set of challenges. Freelancing income is not as regular as a steady paycheck and is rather very fluctuating and unpredictable. While you might not be able to receive a steady income every month, you should make a budget that takes into account your existing and potential projects so that you’re on track with respect to your financial goals.  

Moreover, freelancers also miss out on employee benefits due to which they are solely responsible for managing their financial hurdles such as taxes, late-paying clients, and unanticipated expenses, to name a few. That is why understanding how to manage finances as a freelancer is crucial for all independent professionals.

Do not let this unsteady flow of income come in the way of building your life as a successful freelancer. With these strategic tips of financial planning for freelancers, you can empower yourself and enjoy the perks of freelancing life.

Bonus Read: 9 Best Freelancer Tools To Help Scale Your Business

Here are a few tips to manage your finances:

Track your income

How to keep track of freelance income is the most pivotal step in managing your finances. Getting money into your bank account is not enough, you should know how much you’re bringing in and how much your time is worth. When you set price for your freelance services, you'll get some idea of how much you're bringing in as you onboard new clients.

How much did you make this month? Were your last year’s earnings better than this year's?

These insights will give you a much better idea to prepare for the crests and difficulties in your career graph. You should maintain a spreadsheet to track your freelancing income and to prepare yourself beforehand for the tough and slow times of the year.  

Track your expenses

To successfully manage freelancer finance, you should not only monitor your income but also your expenses. Apart from your fixed expenses including your rent, taxes, insurance, etc., you should also take into account the flexible expenses and try to limit them, if possible.  

Make a comparison of your average income and average expenses and then design a budget accordingly. Keep all your receipts because that will come in handy when you are doing your taxes at the end of the year. You can claim a variety of business expenses on your taxes which can only be done if you regularly track them.

Keep your business and personal separate

Separating your finances into business and personal and maintaining separate bank accounts for each is critical for freelance money management. Budgeting will make it easier to manage personal finance such as grocery, fees, car, etc. and business expenses such as insurance, taxes, overheads, etc.  

Business accounts can be used to accept payments from clients. The balance in this account will give you a fair idea of your income. The money in your personal account will come from the business account but it should be a nominal figure, which is transferred at regular intervals and not the entire balance.  

Manage the tax problem

As a freelancer, you are responsible for paying your own taxes. And this means putting an adequate amount of money away for your taxes on a regular basis. Filing your income tax return can be a wearisome job especially if it is done at the last minute.  

You can reach out to accountants to find out how much money you are required to put away for taxes. To prudently manage your finances, always file your taxes as soon as the previous year’s filing gets over.  

Moreover, you can use invoicing tools to manage taxes for different clients, as per their region of work.

Make provision for short and long-term savings

Freelance work is extremely unpredictable; therefore, it is very important to save money as a freelancer. Even with a steady clientele, your work and your income might fluctuate every month and you are bound to deal with difficulties in your career. It is advisable you save at least three months’ salary in advance before starting your journey as a freelancer. Once you get the ball rolling, you can start planning your short and long-term savings.  

Short-term savings are for your unexpected expenses and it is highly recommended to keep aside a month’s income to deal with sudden expenses such as health check-ups, car repairs, family emergencies etc. Your long-term savings are about three to four month’s income which will enable you to stay afloat when experiencing dry spells.  

Conclusion

Freelancing income is never steady. Hence, knowing how to manage finances as a freelancer is the key to enjoying the freedom of freelancing life. It is a rewarding experience and can be a lucrative business if one is able to sustain and maintain a good influx of cash. You do not require a fancy degree in finance to manage your finances, just keep in mind these best practice budgeting tips for freelancers:

• Do not spend more than you earn
• Save money for contingencies and future growth
• Manage your taxes well
• Do not mix business and personal expenses