Managing money is hard enough when you have a steady salary, but things become even harder when you work freelance. When your income changes from month to month, planning for the future can be hard. Doing all of this without some sort of system is next to impossible. It can be difficult to even stay on budget week to week. As a freelancer, you need a system to make handling money less complicated. This article will talk about various aspects of being a freelancer and how to manage your expenses on the way.
When you are first starting out as a freelancer, there will be good months and bad months. It is not uncommon for your income to vary by hundreds, if not thousands of dollars each month. That is why there are a few basic tips to cover before we dive deep into logistics.
- Save for emergencies. In fact, save double what you normally would. Emergencies happen, and normally at the worst time. It is important to have enough money saved up so that an emergency will not ruin you financially.
- Be prepared for taxes and insurance. Since your taxes are not already taken out of your paycheck, be prepared to pay a little more than usual when it comes to taxes. At the end of every fiscal year, you will be responsible for paying all your income taxes. This can be a surprising amount of money depending on how much you earned, so be ready for tax season.
- Keep a cushion of money for random expenses. Sometimes a purchase comes up that you were not expecting, but needs to be made. This is what a cushion is for, the unexpected. However, this money is separate from your emergency money. Maybe your car needs repairs, you need the newest video editing software, or you want an additional certification. These things might not be possible without a cushion, so keep one handy.
Separate your business expenses from your personal expenses. Many seasoned freelancers will even keep different bank accounts for different money. Keeping different accounts for different expenses keeps things more simple, rather than you keeping track of all these variables in your head. If you really want to get into separating everything for maximum simplicity, try the four account system. Have a different account for business checking, business savings, personal checking, and personal savings.
Find out what you make on Average
It is important to pay yourself when you are freelancing. It can be easy to get lost in expenses and never take any money out for yourself to use. You are working a job, so you get a paycheck; it just looks a little different.
So you want to pay yourself, but how much? A good first step is to find out how much you make a month, on average. This won’t be a perfect number since income can vary so much, but it’s a good starting place.
Once you have that average, figure out how much you spend on necessary expenses like rent, food, car, and more. Provided you aren’t left at zero after you factor in expenses, there is still more to consider. It is not a bad idea to estimate your taxes and take that out of your income in preparation for tax day. This will make sending off your taxes less shocking and damaging since you already have the money set aside.
Insurance is another major expense. Whether it be health insurance, car insurance, title insurance, or something else, insurance is a necessary part of life. Set aside money specifically to ensure you are covered in case something goes wrong. It is much easier to pay for insurance than paying for everything out of pocket.
Being a freelancer is not easy. You are your own banker and taxman. Make the process as easy for yourself as possible. Separate expenses and accounts to keep things simple. Plan for emergencies, take taxes into consideration, and always have a cushion of money to catch you when you fall. Plan out all of your expenses so you can see exactly how much money you have left. Don;t forget to pay yourself through all of the craziness. By following these suggestions you will be on your way to a freelance expert.