A 2022 survey with 5,280 respondents revealed that almost 26 percent of independent workers in the United States chose their line of work—like freelancing—to support their basic needs.
Supporting basic needs involves financial management. Although freelancing offers autonomy and flexibility, it is an unpredictable job. Just because you have income now doesn’t mean it’ll be stable in the following weeks, months, or years.
As such, financial management is crucial for freelancers like you. If you don’t know how to start, this guide offers tips to help you manage your finances efficiently.
1. Create Separate Accounts for Expenses and Savings
The first thing you should do is to separate your expenses and savings by creating different bank accounts. The separate accounts help you simplify bookkeeping and save money without sacrificing daily, weekly, and monthly expenses.
For expenses, you can open a free checking account online. With this, you can manage your finances from anywhere with an internet connection. You can effortlessly monitor transactions, check balances, and execute transfers, all without the constraints of traditional brick-and-mortar banking hours.
Meanwhile, you should open a savings account to help you set and reach your financial goals. One significant advantage of a savings account is its withdrawal limitations, which discourage impulsive spending. Moreover, it often earns interest, albeit modest, which can contribute to the growth of your funds over time.
You can also open a business account to separate your freelance finances. For example, use this account to make payments for software subscriptions. Moreover, this account is where you receive payments from clients.
2. Outline a Budget Plan
Since income from freelancing is unpredictable, you should create and maintain a budget.
Determine your monthly average income to create a budget baseline if you have irregular income. Add the amount you earned from the past 12 months and divide the total by 12. Then, outline your budget plan by listing how much goes for different monthly necessities.
When you have high-earning months, save the extra money to cover other expenses on low-earning months.
3. Monitor Your Expenses
Expense tracking is essential to monitor how much you’re spending on personal and business expenses to avoid overspending. Here are simple methods to track your expenses:
- Create a spreadsheet to compile your expenses
- Categorize your expenses based on necessities
- Use formulas to compute your daily, weekly, and monthly average spending
If you prefer the traditional approach, write down your expenses in a small notebook. Dedicate a page to each category to avoid mixing them up.
Whichever method you choose to monitor your expenses depends on your preferences. After all, the best approach is where you’re most comfortable with.
4. Time Your Projects for a Consistent Paycheck
Since no work means no income, you must stay booked and busy.
The key to acquiring many projects is timing the tasks. For instance, if you’re a freelance writer, set deadlines to give yourself enough time to invoice and work to get paid before your monthly bill due dates.
Another factor to consider when timing your projects is how long each task will take. Underestimating this aspect may result in clients shortchanging your rates. It’s best to assume any project will take 20 to 50 percent longer than you think so you can establish reasonable rates based on the project’s difficulty.
5. Invest in Insurance
Freelancers don’t have access to employer-sponsored insurance programs. Thus, you have to apply for a policy yourself. One policy you should invest in is health insurance.
Self-employed individuals like freelancers can buy health insurance from the Health Insurance Marketplace. You can choose a plan with low or high premiums depending on your needs. Choosing a policy that helps lessen your future medical expenses is ideal.
Moreover, consider getting professional liability insurance to protect you against libel, defamation, or copyright infringement claims. This policy is also known as errors and omissions insurance, or E&O.
6. Manage Your Taxes
Freelancing requires you to manage your taxes yourself. Enhance your financial planning by regularly using an online tax calculator to assess and pay your quarterly taxes accurately. Then, use your business account to hold the money for tax payments.
If tax accounting seems overwhelming, consult a tax accountant. A tax accountant can help you determine the amount to set aside for taxes and how to maximize deductions to lower your bill. They can also provide insights into areas you might be unfamiliar with.
7. Purchase Annual Subscriptions Rather Than Monthly
While clients can give you access to software solutions they use, there are specific platforms you might have to purchase yourself. These platforms provide monthly and annual subscriptions.
Whenever possible, purchase annual subscriptions. Annual subscriptions are usually more affordable than monthly payments combined. Additionally, service providers often offer discounted rates for annual packages.
However, this doesn’t mean monthly subscriptions are more expensive. You’d still need to check your options to see which plans suit your job requirements and budget.
8. Build an Emergency Fund
Emergency funds aren’t similar to savings. These cash reserves are dedicated to emergency expenses that are not part of your budget plan.
The amount you need for emergency funds depends on your situation. Think about how much your previous emergencies have cost. The average can help you determine how much you need to set aside.
If your income is irregular, building an emergency fund can take time. But even a tiny amount helps secure your future. You can increase the emergency money to set aside as you increase your earnings.
9. Be Firm With Your Rates and Payment Terms
Rates and payment terms are crucial for freelancers. You should be firm with your conditions to ensure proper compensation. Here’s how to do it:
- Ensure your rates don’t undermine your work – Besides supporting daily needs, you pay taxes, insurance, and other necessities. You also render your time and expertise, so make sure to set your rates based on these factors
- Follow up on overdue payments – Many freelancers struggle with late fees. To avoid this issue, check your outstanding and upcoming payments regularly. Send reminders or follow-up emails to ensure on-time payments. You may consider adding late fees to encourage clients to pay on time
- Establish shorter payment terms – Many clients pay freelancers within 30 to 60 days. However, this payment term isn’t suitable for some freelancers. You can ask to get paid within seven or 15 days, while 30 days for more significant projects
10. Work With Multiple Clients
If you focus on one client and they run into financial issues, you might not receive your payments. For this reason, working with multiple clients helps diversify your income sources. Thus, you don’t have to worry about losing income because you have other earning opportunities.
Working with multiple clients also offers continuous workflow and exposure. Moreover, it helps diversify your niches to strengthen your knowledge, skills, and expertise across industries.
Remember that multiple clients require balance and time management. You should establish a working routine that helps you ensure the quality of each project.
11. Use Online Money Management Tools
You can make your bookkeeping process less stressful by using online money management tools. Examples include:
- Mobile Banking Apps: Banks provide these applications that let you deposit, withdraw, pay bills, and track expenses using your smartphone
- Personal Finance Management (PFM) tools: Comprehensive platforms that provide insights into your financial situation
- Bill Organizers: Apps, sites, or software solutions where you can input and organize your bills and set due date reminders
- Price Comparison Websites: Sites that let you compare product or service costs to choose the best deals that won’t break your bank
Secure Your Future While Freelancing
Freelancing’s unpredictability doesn’t have to hamper your financial wellness. Even with irregular income, you can save money to sustain your needs and secure your future. You just have to find the proper routine that ensures financial security.