Freelance is a preferable work arrangement for many. It offers flexibility that lets you manage your time as you wish. But it can also be a stressful endeavor.
Employees working nine-to-five jobs have set work hours and paydays, meaning they can more or less anticipate their workloads and monthly budgets. On the other hand, Freelancers are not always paid on the same days during the month, so calculating income and expenses is not as straightforward.
Budgeting can be challenging when you are a freelancer. But it becomes even more critical to make sure you live within your means across every season. These are our best tips for freelancers working hard to remain in control of their finances.
Have Clear Financial Priorities
Setting clear priorities lets you use the right amount of your income for the right things. These are tips to make sure your priorities are in order.
- Divide your income
Devise a system that lets you allocate your earnings in the appropriate areas. The 50/30/20 rule is a commonly used method that divides post-tax income into three categories: 50% on essentials (food, bills, insurance, and other needs), 30% on wants, and 20% on savings and debt payments.
The 50/30/20 method gives you a blueprint for how to manage your income when it comes in, especially when you receive payments through onbe.com and similar payment platforms. It will also keep you from overestimating your spendable budget.
- Put a cap on monthly expenses
The division of your income will vary depending on which clients are ready to pay you for that month. This means you regularly have to set a spending limit to make sure you remain financially capable for months when you will earn less.
An effective way to ensure you stay within budget is to use a budget tracker and log your expenses, whether for wants or needs, on it. These apps are accessible via your smartphone, so they also take little effort to update in real-time.
- Have personal and business bank accounts
Since freelancers usually have various income streams at one time, it is easy to mix up your budgets for both personal and business needs. Having only one account for both makes it harder to compute for your business expenses come time to pay taxes.
A separate business account can help you identify which of your expenses are tax-deductible. Since your tax responsibilities are not as straightforward as an office employee’s, an easily understandable record simplifies the job for you.
- Plan for retirement
Do not forego saving for retirement, as tempting as it may seem. The good thing is that freelancers have several retirement plan options available despite the lack of an employer to sponsor and arrange these on your behalf.
Investing in your retirement can be intimidating. But when you start making regular payments, it just becomes one among your other bills. You can even automate your payments to give you one less thing to worry about at the end of every month.
Save Money Where Possible
Since the arrival of your paychecks varies, you have to do some belt-tightening to make sure you have enough until the next payday, whenever that may be.
- Take advantage of tax deductions
Be mindful of tax deductions available to you. When you are aware of these, you can fix your budget ahead of time. These are some tax-deductible expenses for your freelancing business:
- Internet services
- Cell phone plan
- Reference materials for business
- Business-related travel expenses
- Business-related meals
- Postage expenses
- Workplace rent
- Software used for business
- Professional training and courses
- Professional equipment* (computer, printer, office supplies, etc.)
*This includes equipment specific to your industry. For example, cameras and lenses used by professional photographers and recording equipment used by voice-over artists are tax-deductible.
- Don’t treat yourself immediately
Lastly, being a successful freelancer requires a great deal of self-control. There are times when you will get a large deposit after the conclusion of a project. This may make you want to splurge on something you don’t need all of a sudden.
Resist these spending urges, at least for now! First, set aside the necessary budget for your needs, savings, and taxes. Rewarding yourself for a job well done is essential, but only when you have arranged all these details should you think about how to celebrate your hard work.
Having a freelancing career presents unique challenges. But you can safely navigate these hurdles with a good plan and a healthy mindset. Just remember to prioritize savings, forego unnecessary splurges, and let yourself enjoy once in a while.