The financial game is completely different when you’re a member of the gig economy. Here are ten must-have finance tips every freelancer should know.
By the year 2027, experts estimate that 50.9 percent of the U.S. population will be working on a freelance basis.
Are you ahead of the curve? Are you already working as a freelancer?
Whether you freelance full-time or just do it on the side for some extra cash, you probably know that managing your money when you work this way can be tricky.
If you’ve been having a hard time staying on top of your finances as a freelancer, keep reading.
Listed below are ten essential finance tips that can help every freelancer make the most of their paycheck.
1. Plan for Droughts
When you work as a freelancer, you don’t always have a steady workflow coming your way.
Sometimes, you have an abundance of projects on your desk and lots of money coming in. Other times, your projects are few and far between and your income becomes a lot smaller.
Make sure you have a plan for those work droughts — they will come along at some point. If you have a plan in place and money set aside, you’ll be less likely to panic when they occur.
2. Pay Your Taxes
Ah, taxes. No freelancer likes thinking about them. They’re due every year, though, whether you like it or not.
To avoid having a panic attack when tax season rolls around and you realize that you owe the government thousands of dollars, it’s important to make sure you’re setting aside a percentage of your monthly income to pay taxes.
The specific percentage you set aside will vary depending on the amount of money you and your partner (if you have one) earn.
Figure out your tax bracket and take that percentage out of each paycheck so you have enough money to pay Uncle Sam. Make quarterly tax payments, too. This will help you avoid getting hit with a penalty from the IRS.
3. Track All Your Expenses
If you want to minimize the amount of money you pay the government each year (and who doesn’t want that?) it helps to track all of your business-related expenses.
This includes a portion of your utilities if you have a home office, the money you spend on gas when you drive to meet with clients, and any supplies you have to buy to run your business.
Save your receipts and use bookkeeping software to track these expenses so you can deduct them when you file your taxes.
4. Create a Budget
Everyone needs a budget, but freelancers can especially benefit from tracking their expenses and creating a job for every dollar they earn.
Figure out how much you need to cover your daily living expenses and allocate a certain amount of money to cover everything. Make sure you include savings and taxes in your budget, too.
5. Get Insurance
Many freelancers are uninsured. This is very risky and can lead to serious financial issues later on if an emergency occurs.
Make sure you have health insurance, car insurance, and renters’ or homeowners’ insurance. It’s a good idea to invest in life insurance, too, especially if you have dependents.
In addition to health insurance, you may want to open a health savings account, too. This is a tax-deductible account that you can use to cover health-related expenses like co-pays and prescriptions.
6. Save for Retirement
Make sure you’re setting aside money for retirement, too. As a freelancer, you don’t have the luxury of an employer-provided 401(k).
You can still save for the future, though, with a Roth or traditional IRA. If you use a traditional IRA, you can also deduct the money you put in it from your yearly tax bill.
7. Get Paid What You’re Worth
At this point, you might be looking at all the things you need to buy and save for as a freelancer and thinking about throwing in the towel.
If you’re not sure you have enough income to cover all these things and still make ends meet, you might need to adjust your rates. Make sure you’re charging what you’re worth from your clients.
Your work is valuable and you’re providing them a great service. Do some math and figure out whether you need to raise your rates to get paid what you deserve and have enough money in the bank.
8. Separate Business and Personal Accounts
It’s very important to separate your business and personal bank accounts.
This will help you keep track of your spending and make sure you’re not dipping into personal money to cover business needs (and vice versa).
It’ll also make it easier for you to create business and personal budgets for yourself.
9. Use Percentages Instead of Dollar Amounts
When you’re putting together a budget for yourself and figuring out how much to allocate to each category, it’s better to work with percentages instead of dollar amounts. This is because freelancers’ income tends to fluctuate from month to month.
If you go by dollar amounts, you might have months where your short money and months where you have a bunch leftover. Working with percentages makes more sense for most people and helps them ensure they start saving the right amount.
10. Build Your Credit Score
Make sure you’re taking steps to raise your credit score or keep it high.
As a freelancer, it can sometimes be hard to get approved for loans because you don’t have a traditional source of income.
If you have a high credit score, though, you’ll have a much easier time getting the approval you need for things like mortgages and car loans.
Work on raising your business credit score, too. That way, if you need to take out a business-related loan, you’ll be able to do so without any problems.
Looking for More Finance Tips?
As you can see, there are lots of things you can do as a freelancer to save money and maximize your earnings.
Whether you’re a brand new freelancer or have been freelancing for decades, these finance tips are sure to help you become better at handling your money.
Are you interested in learning more about personal finance? If so, visit the Money section of our site today for more helpful advice.
This section is full of useful tips and tricks for anyone in need of help in the money management department.