There are many challenges that freelancers have to go through from time to time. In many respects, of course, being a freelancer is simply very similar to running a business of any other kind. But that is not to say that there are not differences – there are, and a range of challenges and opportunities exist for the freelancer which are simply not there for other kinds of businesspeople. In this post, we are going to look specifically at how you can expect to better manage your finances as a freelancer. Following these tips and tricks should make that a lot easier and simpler.
It might sound basic, but one of the main things you need to do as a freelancer is to learn how to create a budget. Although it’s a fairly simple thing to do, many people do actually struggle to make it work. However, by following a few essential things, you are going to find that it is actually much simpler than you might have thought. One of the first things to bear in mind is that you need to actually commit the budget to paper – or to the screen. As long as you do that, it has a permanence which just makes it so much easier to follow.
Beyond that, try to pay attention to all of the necessary details that might crop up as part of your budget. In other words, you need to think about all of your expenses, from the very big to the miniscule. That will include everything that might be considered an outgoing in your freelancing business. So, you need to consider the costs of not only the lighting where you work, the cost of running water, the internet costs, and so on – but also the cost of pens, books and any other specialist equipment that might be necessary in order to do your job.
Once you have all of those in one column, you need to mark down your likely monthly income. From the difference between these two, you can work out what your budget is likely to be on the whole. You should bear in mind that many of the expenses will be able to be claimed on tax at the end of the fiscal year, but even so it’s worth putting it all down while you are drawing up the budget.
The final thing to say about your budget is that it should be considered an ongoing, flexible and changing document, not something fixed. As your freelancing business grows and you earn more (and spend more) you need to keep reflecting this in your budget. It is best to draw up a budget each month, and more frequently if you are going through any particular changes that might be relevant to the budget and cause it to change in a big way. If you can keep on track with your budget, you should find that everything else is so much easier to stay on top of.
You can’t expect to keep things together as a freelancer without knowing about taxes. If you fail to look after your taxes, then ultimately you could land yourself in a lot of trouble both personally on a financial level, and possibly legally too. Clearly, this is something you need to avoid. But ignorance is no defence when it comes to tax law, so you need to make sure that you are clued up on this and you know what to expect. The other main reason to look into this stuff is that, if you know what you are doing, you can often save money in a legal and responsible way, and that is clearly in your interest to do.
So what do you need to know? First of all, you need to make sure that you are correctly filling out your tax return each year. This is now easier than ever, and for most people it’s a simple case of filling in the income column and taxable expenses column, and then having the website calculate the tax bill. You only really need to fill in other sections of the tax return if you are claiming a number of different convoluted things, for instance. Truly, the best way to approach this if you are is to hire a tax accountant once a year who can arrange it all for you. They should also be able to inform you as to some of the best ways to reduce your tax bill legally.
One of the biggest mistakes that people make early on in their freelance career is not putting aside money to pay the tax bill with. You need to make sure you are doing this, so you don’t run into any problems further down the line.
A very good rule of thumb which you will need to consider and bear in mind is that it is generally wise to keep your freelancing income separate from your normal, everyday bank account. If you have a business account that your income goes into, you are going to find it so much easier and simpler to keep on top of everything to do with your finances. It also helps in protecting your own personal income from anything that might affect your professional income, so that’s an important thing to consider too. Keep things separate wherever possible, with different accounts, and you will find this really helps in a big way.
Ask any freelancer and they will tell you that one of the main problems with the lifestyle is having to chase down clients for money. Many freelancers spend months trying to get paid for the work they do, and it is something that you are going to have to be prepared for and try to learn how to do effectively. The best way to avoid this problem altogether is to try to find high-quality clients who are going to pay you on time, but that is much easier said than done.
At the same time, you need to make sure you have a procedure in place for getting paid, and that it is easy and straightforward. That way, your clients at least don’t have much of an excuse for why they have not paid you. At the start of any payment process comes the invoice, and freelancers soon learn that creating an effective invoice is something of an art in itself. A good invoice should be clear and obvious in what it refers to. It should include your name and address and company name if applicable. It should ideally be typed rather than handwritten. And it doesn’t hurt if it looks good, too.
Surprisingly enough, a good invoice will very often be the difference between getting paid and not. But it’s not the only important part of the process. You also need to make it clear to your clients why you deserve what you are asking to be paid. The best way to advertise this, of course, is to do the work to a high standard, and to make sure that you have done it on time. As long as you do that, your finances will be an easier thing to manage.
Emergency Funds
They often say that freelancing is a ‘feast or famine’ economy, meaning that you either have nothing or you are raking in the riches. There is something to this theory, even if it is a little exaggerated. It is certainly true that your income can change dramatically from one day to the next, and that being prepared for those times when you are earning little is a very good way to be. The main thing to think about here is to make sure that you have something in the way of emergency funds. You don’t get sick pay or holiday pay, so this emergency fund will come in very handy if you suddenly have to take some time off work.
So many people will accidentally find themselves getting into a position whereby they are simply not being honest with themselves. You might be lacking honesty in how much you are spending, or how much you are earning, or even how many jobs you are taking on board. It can be easy to self-delude in this way, but ultimately this is going to make working as a freelancer so much more challenging and prone to mistakes and error in the long run.
In order to gain more control over your freelancing career in general, and your finances specifically, you do need to make sure that you are being as honest with yourself as possible. If you can manage to do that, everything else we have looked into in this article is going to be so much easier to do. That will mean that you are much more likely to find the success you have been looking for, no matter what kind of freelance work you are doing.
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