Financial planning and managing finances as a freelancer or entrepreneur can be daunting. Without an employer to pay taxes and provide disability coverage or retirement savings plans, it can be challenging to keep track of where your earnings and spending lie.
Here are a few strategies for getting your finances under control: 1. Develop a budget.
1. Establish a budget
Budgeting can help freelancers take control of their finances and prepare for any potential ups and downs in life, such as unexpected boiler repairs or dental bills, by setting aside money for emergencies or long-term goals such as retirement.
Before adding in monthly discretionary spending (such as dining out, shopping and education) track these expenses using expense tracking apps like Paymo or Mint which have features tailored for freelancers specifically.
After this step is completed, determine how much to set aside for taxes. This step is especially critical for self-employed workers as there are no automatic deductions from paychecks. A general guideline would suggest setting aside around 30% of income as taxes but you may wish to use a tax calculator for more accurate estimation.
2. Track your expenses
As a new freelancer, tracking expenses may feel like an onerous task; but it is absolutely crucial for freelancers to have an accurate view of how much they are spending each month versus earning in terms of income.
Recording both personal and business expenses is key. From ride-share drivers tracking mileage, web designers claiming home office expenses, or writers using an invoicing app for each project – there are many resources available to you to keep track of these costs and avoid paying unnecessary taxes while saving money over time.
Another essential tip for freelancers or people whose income fluctuates is to set aside surplus income during high-earning months and save it as a buffer during leaner times or for discretionary purchases. A savings account also gives peace of mind if a client pays late or fails altogether – something especially essential if self-employment fluctuates significantly over time.
3. Set aside money for an emergency fund
An emergency fund is designed to cover unexpected financial obstacles like job loss, large medical bills and home and auto repairs. Experts suggest saving enough for three to six months’ of expenses as an ideal goal.
Your emergency fund should include several savings methods that offer no fees or minimum balance requirements, including automatic transfers from checking to savings every month.
Alternately, you could invest some of your emergency savings in mutual funds or stocks; these investments tend to offer higher returns than traditional savings accounts. The ideal emergency fund should consist of finding an amount you feel comfortable saving and then slowly building it over time; you should treat this fund like an insurance policy so as to only use it during true emergencies.
4. Invest in yourself
Being an entrepreneur or freelancer can be both exciting and stressful, which is why investing in yourself and your business is crucial to its survival. By engaging in activities such as exercising regularly or eating healthier or finding ways to reduce stress levels, investing in yourself will help maintain a positive outlook and prevent burnout.
Intelligent income budgeting can also help you better manage your finances. Take the time to calculate your average monthly income by looking back over recent earnings and then dividing that figure by 12. This will give an accurate picture of how much money comes into your household on an ongoing basis – essential information when creating a budget plan.
As a freelancer, another way of investing in yourself is saving money on personal expenses. Working from home can help reduce expenses like coffee shops, meals and after-work festivities as well as commute costs. Consider coworking spaces like myHQ which provide access to basic office utilities for less.