4 Financial Tips Freelancers Should Keep In Mind

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According to the latest stats, there are over 50 million people making their bread and butter as freelancers. The same study shows freelancers earn up to 17 percent more an hour than salaried or full-time employees. Do the math, and these numbers suggest freelance workers should make more money over the course of their careers. However, hidden costs of the freelancing life can cause them to earn 28 percent less than their full-time counterparts.

In some cases, the reason why they make less is that freelancers have a better work-life balance. Many of them end up working fewer hours because they don’t ascribe to the typical 9–5 schedule. In other cases, the answer is much simpler: it’s because they’re bad with their money.

If you can’t work any more hours, and you’re still struggling, it’s time you figure out how to manage your money. Follow these financial tips to make sure you’re reaching your full earning potential as a freelance worker.

  1. Rely on a budget

You see the figure at the bottom of your invoice after every job, but do you really know what you’re earning each month? It can be hard for anyone to keep track of their earnings from these small glimpses, no matter what they do for a living. It’s even more difficult to anticipate how much you’re making annually when your invoices show inconsistent earnings from one bill to the next.

A budget gives you a different perspective, so you can see the bigger picture. Whether your budget is a homemade Excel file or a money management app downloaded to your phone, make sure you use it to:

  • Input your earnings: A budget offers insight into your work history by tracking your income. It may show you have a slow period at a particular time of the year, every year. You can help ease some of the financial pressure off these stretches by saving extra money during your peak periods when you’re earning the most.
  • Track expenses: This works twice-fold in your favor. Firstly, tracking your expenses will expose any harmful patterns in the way you spend your money— like paying for a take-out Americano every morning when you have a coffee maker at home. Secondly, this will help you prepare for taxes should you want to deduct any work expenses.
  1. Update it regularly

Unlike some workers who take home the same earnings every paycheck, your income may fluctuate. Though you’re working on a job every week of the year, what you bring home depends on the season, the clients, and your previous workload. As a result, you can’t just plug in some numbers for the entire year and leave your budget alone. Make sure you update your budget regularly, so it’s accurate at any time of the year.

  1. Make taxes a priority

Tax season can be stressful for anyone, but the pressure is higher for freelancers. Salaried workers have their taxes and other deductions taken out of each paycheck. These regular withdrawals ease some of the burdens they may feel when paying taxes. You have no such luxury when you owe all your taxes in one lump sum in April.

You can mitigate the effects of your taxes by deducting self-imposed withdrawals from your invoices all year long. To do so, use a calculator to estimate how much income tax, Medicare, and SSI you’ll owe on every invoice. Divert that number from your income and put it in a dedicated savings account. Don’t touch this account no matter how tempted you may be. Let it keep growing, so you’ll be prepared for when the Tax Man comes calling.

  1. Have an emergency fund

Taxes aren’t the only deductions taken off the typical paycheck. Some workers have the option of having voluntary withdrawals from their bi-weekly or monthly pay. These deductions, including employer-matched 401(k)s, disability programs, and health care coverage, act as a safety net in case of an emergency. They help workers set aside money for the big things like retirement, a layoff, or a loss of job due to injury.

Since you’re the boss, you’re the one who has to erect your own safety net. It can be a challenge to take this task on by yourself, especially when many experts suggest freelancers need a more robust safety net than others due to the volatility of your work.

These experts suggest you put aside as much as one full year of income in savings. Regardless of how much you make, this can be a daunting task when you’re starting from scratch. In the meantime, with $0 in savings, you’re vulnerable to bills and repairs until you develop enough of a safety net.

Though you may not have the same support system as other workers, you can rely on a direct lender when you face an emergency without savings. Online lenders like MoneyKey provide cash loans online, making them an easier and more convenient source of assistance than most traditional banks. While the country’s biggest retail banks follow strict policies when issuing loans, online lenders aim to remove many of the complexities that delay (or reject) your application.

Keep this in mind the next time a client is late paying their bill at the same time you’re forced to make expensive equipment upgrades. These payday loans can be a life line when you don’t have any savings.

Check in with other resources to see how you can create your own versions of benefits, insurance, and retirement funds as a freelancer. Start with CNBC’s simple guide to retirement savings and U.S. Money’s freelancer benefits tips. These articles should give you a good idea of what to do.

But don’t stop there

The name of the game is preparedness if you expect to be financially secure as a freelancer. Embrace your inner Boy Scout or Brownie and start thinking about your money carefully. Keep reading and learning about your freelancing opportunities. When you keep an accurate budget and make regular contributions to taxes and savings, you’ll be ready for anything.

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