Freelancer Finances: 5 Ways to Get Better at It
Whether you are running an e-commerce business or branching out by yourself, there is a lot you need to keep track of. Your finances as a freelancer require you to keep a close eye on them, but you also need to ensure that everything is above board when it comes to filling in tax returns or even working with an accountant. It’s not easy, especially if you’ve transitioned from a job with perks and the pay you’re used to to a freelance lifestyle. But let’s show you how you can improve your financial management in simple and effective ways.
Follow Up on Payments
If there’s one thing any freelancer should be, it’s tenacious, especially when it comes to payments. You’ve worked hard, so therefore you should send invoices promptly and follow up on any overdue payments. Cash flow is a common problem for freelancers, and it’s important to get on top of this straight away. The great thing is that there are always numerous invoices available online. This tax invoice template is just one example. But you need to make sure that receiving payments on time becomes a priority.
Understand Your Tax Obligations
If there’s one big mistake freelancers make, it’s thinking that every single penny they earn is theirs. You may need to consult with a tax professional to understand how much tax you should be paying out of what you earn. You may also want to look at setting aside a specific portion for a pension. It ultimately depends on where you are in the world and specific tax structures. But when you look at how much you earn, don’t think that is entirely yours because this is where you get into trouble, and you are forever chasing your tail when it comes to paying the tax man.
Build an Emergency Fund
Many people go freelance to earn more money, but it becomes apparent that, in fact, a lot of the money you earn should be set aside. This isn’t music to most people’s ears, but freelancers tend to have an irregular income. Therefore, you need to provide a safety net during those difficult months when your earnings are skinnier. The general rule of building an emergency fund is between 3 and 6 months of your living expenses. When you can save that amount, you will have far more peace of mind as a result.
Separate Your Business and Personal Finances
One of the most important things everybody should do is to make sure that personal business finances are separate. This makes tracking any income and expenses far easier when it comes to paying the tax man.
Create a Detailed Budget
If you start your journey as a freelancer, you should understand where your money is coming from and where it’s going. Freelancers can have a very haphazard approach to their finances, which is why either having an accountant or using budgeting apps or spreadsheets can be invaluable. There is a lot to consider when it comes to effective financial management as a freelancer. Some of these components will work wonders for you. By taking the right approach to your finances, you can improve your financial stability for your freelance career.