Becoming a sustainable freelancer is a dream come true for many. You get to pick your clients, work your own hours, and most importantly, choose where you want to work from. You don’t have to go into an office every day, but you can have the beach be your office. As long as you complete stellar work for your clients. However, Freelancer finances can be a drag.
When you become a freelancer, you end up having to wear not just many hats but all the hats of a business. You need to be your own manager, operations expert, and financial department. As well as market and grow your business. This is on top of actually having to get the specified freelancer job done for your client.
You need to track your freelancer finances and expenses
As a freelancer, everything that you spend comes out of pocket. That means your personal finances need to be healthy enough to involve additional expenses. Ones that may come in to support your freelancer lifestyle.
This also means that you need to start separating your personal and freelancer finances immediately. You’ll want to be able to track all your costs. Then easily be able to separate which one is for personal use and which is for professional use.
Don’t try to assume what constitutes a personal or business expense. Even though freelancers are oftentimes one-person operations, always make sure to get yourself a qualified and licensed accountant to be able to handle the proper annual filings. You can lean on them as part of their responsibilities to be able to tell you what is considered a business expense.
Organize your freelancer finances
If you haven’t already started a financial plan for financial management, you would need to do that as soon as possible. As you do this make sure to have two types of plans. These are a financial plan for your personal self and your financial books for your freelancing self.
Unless you’re just starting out, you’re going to want to work with software that can help to generate invoices. At the same time, they will need to incorporate your expenses to show your overall cash flow as a freelancer.
There’s no one to really go to. So, make sure that you have all the necessary documents always available to hand off to your accountant at year-end. That means not only the invoices you spend but also the receipts and invoices you’ve saved up for your expenses. Otherwise, you’ll be stuck with business expenses that may not be able to provide you with the tax relief you were assuming they would be for.
Build out a forecast
Unless you want to be in the exact same position and have the growth of the same numbers year over year, build out a financial forecast of where you want to be. You can incorporate this into your financial overview as a freelancer.
Then, you’ll have that visual build-out that shows you where you are and what you need to do to get to your desired target. Without this type of financial forecasting, you won’t be able to grow your business. You’ll be left just managing your finances without any type of direction.
Make sure to get your payment
A big part of a freelancer is getting your payment on time. However, there are some occasions when businesses may take the time to delay payment to freelancers. Whether this is as their own cash flow strategy or simply due to forgetting to get around to it. That’s why a big part of being able to manage your finances is to ensure a consistent inflow from your jobs and gigs in a timely manner.
This will help you to close out invoices and mark them as having received payment. Helping to update any type of accounting software with accurate information at the same time.
You should make this a priority, as without these funds coming in, it makes it harder to plan out and pay out the expenses down the line. In addition, you can sync your projects to come to completion when you know the company also ends up handling payments for their own expenses. Therefore, you can avoid waiting for their next payment cycle.
Start building out your freelancer finances and savings
Freelancer work does not mean financial freedom until way down the line. That means you want to take extra care in building up your savings right with your first project.
Make it a note to take a certain percentage of the revenues. This should be regardless of the project size and put this percentage away each time your invoices get paid. You’ll quickly see that your savings will grow, and it won’t impact your immediate finances.
Take extra care here as freelancing work is also sporadic at times. So you want to be able to have enough in the bank to keep yourself afloat if the time between jobs has an extension.
Once you hit your savings goals, don’t be afraid to start putting a portion into savings as well as investments.
Save for your taxes
In many places, being a freelancer means paying taxes on your own. Also, when you pay, those taxes could differ. Either way, it’s up to you as a freelancer to estimate (with the help of an accountant if you’ve found one) what your tax obligations will be and to save enough to cover that.
You’ll be invoicing for gross amounts, and part of it should go to the savings. You should also immediately lock away another percentage for tax purposes. That way, when you do have to pay out your taxes, you won’t have to scramble for the funds or take on extra work to cover the cost of your taxes.
By often, we suggest weekly. You want to make sure that you are always on track, so take the hour a week to see where you are and where you should be. This is especially important in the early days of freelancing. It will ensure that you’re making enough to feed yourself, save, and pay the tax department all at the same time.
The more time you’re able to dedicate to checking in on your finances, the less chance you’ll have an unpleasant surprise. These can include a lack of funds or lacking the ability to pay a large bill when it comes due.
You’ll need to build up a certain discipline as a freelancer that’s different when you’re just a regular employee of a company. Without it, you’ll see yourself having no actual growth or reward as a freelancer. In turn, no way out of being able to retire eventually.
Save money with business-related expenses where you can
You don’t need to have premium-level business bank accounts or costly subscriptions for your website to promote your business early on. However, you also may experience some clients that pay you in a foreign currency other than your own.
Therefore, you might want to consider using services to convert into your local currency that will be well below bank rates. This will help with your savings and growth plan. That’s why you should consider using DT&T as your partner when it comes to handling different types of currencies. You will be able to keep more of your money and not lose it to unnecessary fees.