Becoming a Freelancer: What it Means for Your Finances
A freelance income can seem lucrative to anyone who hasn’t tried to live without a steady paycheck for a while. At any one time, freelancers can see more money come into their account than those with traditional jobs see in several months. Unfortunately, this deceptive extra income frequently leads to a month to month style of living that doesn’t work well with long term financial planning. Handling your finances well as a freelance business owner can mean the difference between living comfortably and getting buried in debt.
Here are some important steps a freelancer needs to take to manage their financial well-being successfully:
Keeping Track Of Invoices
Every penny you make should be tracked and accounted for, including when it comes in and from where. Consider choosing business software designed to track incoming and outgoing income in a way that you’ll be capable of keeping up on. Every business expense you have should be completely accounted for, and every penny that comes into your business needs to be tracked.
Weathering An Unpredictable Income
Without a steady paycheck, your income will start to fluctuate significantly from month to month. Consider putting aside an emergency savings reserve with every penny you can spare until you can cover at least six months of your current standard of living without drawing a regular paycheck. Remember that freelancers don’t get unemployment benefits or sick pay.
Setting Aside Your Own Taxes
Set aside a pre-determined percentage of your income every month for taxes based on what your previous tax records indicate you’ll need, and don’t be afraid to overestimate. If freelancing is new enough that you don’t know what you’ll make, look up an average for your country in your general income bracket and start there. Consider hiring a tax professional if you don’t do taxes for a living.
Consider Insurance
A freelance income doesn’t leave any time or money for getting sick, so consider health insurance, short term disability insurance, long term disability insurance, and life insurance if your country doesn’t automatically tax for these items and provide services. Anything that your employer may have covered for you or deducted from your paycheck will need to be handled personally.
Separating Your Finances
To keep track of your month to month business expenses and get a realistic idea of how much you are actually making, be careful to separate your home and business expenses completely. You need to know how much is coming into your business account every month and how much of that money needs to go back out for business expenses.
Think About Retirement
Most jobs offer retirement savings plans, pension plans, and other options that are designed to protect the worker from retiring without a penny. As a freelancer, you’ll need to start planning your own retirement income as soon as possible. Talk to an accountant to figure out how to start saving for retirement and meet your personal retirement income goals.
While freelancing can be a breath of fresh air after working a traditional job, the financial aspects of running a personal business can get hard to handle quickly. Start planning for your financial future as early in your freelance career as possible to make sure the money issues that happen when you work freelance jobs stay under control.
This guest post was written by David, co-founder and editor at one of Australia’s leading credit cards comparison websites where Aussies can compare and review a range of small business credit cards that offer a variety of rewards.
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