How to Manage Your Finances as a Freelancer

There’s a long list of things you may like about starting a career as a freelancer. You have the flexibility to choose the jobs and employers you want, and you even get to set your schedule. However, this amount of freedom has its drawbacks. Considering that you are in full control of your professional trajectory, you will have to deal with the details of making sure you remain thriving within your niche. 

Whether you’re writing e-books for someone else or building websites for tech startups that are too busy having to deal with it, you will need to think about keeping yourself financially afloat.

Looking at current economic uncertainties, there may be points in your career as a freelancer when your income stops flowing as steadily as before. It’s always best to create a habit of managing your finances down to the last penny. Here’s a quick guide to help you deal with this:

1. Track your income and expenses

The first habit you will need to nurture as a freelancer is knowing how to account for every dollar that flows in and out of your wallet.

The worst mistake you will ever commit is failing to build a system of monitoring your finances. While you could be earning more than the average in your niche, you may still find yourself struggling to pay your bills if you’ve spent the bulk of your earnings on low-priority expenses. 

To avoid this, consider downloading a digital expense tracker that allows you to monitor your expenses so you can make necessary adjustments to your lifestyle. By keeping a close eye on your financial habits, you won’t have to dig deeper to know what’s draining your bank account. 

2. Factor in tax payments

Not many people are fond of doing their taxes, but it’s a necessity to avoid having to cover a massive bill that includes penalties and late fees. Even cannabis dispensaries seek out tax solutions from providers like Bullseye Bookkeeping services just to stay current on their tax situation. 

As much as it is cumbersome on your part, you will have to think about the impact your tax situation has on your freelancing career. If you don’t have the time to deal with bookkeeping details, you can always harness platforms like QuickBooks or outsource the work to a reliable virtual assistant who is a CPA.

3. Set your personal expenses apart from official business

Another fatal mistake you might unknowingly commit as a freelancer is to merge your personal expenses with your official finances.

Legally, freelancers are considered sole proprietors in that they offer services in exchange for a fee, much like any business. This carries the danger of having your personal assets taken as a result of a lawsuit or a debt default. 

By setting a clear boundary between your personal money and your official finances, you can avoid losing your savings to a court decision. This practice also allows you to account for your expenses and identify tax deductions accurately, which you may qualify for.

4. Build an emergency fund 

Even as you keep a good accounting for your business and personal earnings, you will still need to think about possible scenarios in the future that could disrupt your financial stability. You can’t always expect life as a freelancer to be free from worries. 

An unexpected death in the family and a house fire could halt your plans and give you an additional financial burden to overcome. It pays to set aside a substantial amount as your emergency fund. That way, you will always have money to move around without having to exhaust your savings and disrupt your income flow.

Endnote

If you’re planning to make it as a freelancer, don’t think that you don’t have to deal with the details of financial management. Consider these tips and keep yourself afloat no matter which way the gig economy is going.