So, you’ve ventured into the complex but exciting world of freelancing? Congratulations! Making this huge decision is the first step to taking charge of your life and capabilities. Here are some financial tips for new freelancers.
Freelancing has a lot of pros—you’re basically your own boss and you get to decide on pretty much everything workwise. The possibilities are endless in the world of freelancing. You’ve got the opportunity to keep growing on your own terms and of course, your road to financial independence is sure to be a fast ride!
One con of becoming a freelancer, however, is the financial risk that comes with it. Because you’re no longer working a regular 8-5 job, your income may be inconsistent and fluctuate according to the projects coming your way. Yes, we know it sounds daunting, but talented ladies and strong women from all over the world can do anything if they set their minds to it!
Some Tips for New Freelancers
Consider this your short guide! To help you out on your freelance journey, consider these handy tips that can prepare you financially in this new chapter. Additionally, learn How to Jointly Launch Your Startup and Move to a New Home
Build a working budget
Budgeting can enhance anyone’s life by a thousandfold, but it’s particularly even more helpful to freelancers with unpredictable income. Keep in mind that you should, as much as possible, be debt-free. Set budgets for everything—meals, house bills, groceries, lifestyle, and other aspects of your life. This will allow you to keep your expenses on a tight leash and at the same time, allow for savings to grow.
There are very convenient Google sheet templates online that you can use for free to help you out if you don’t know how to code. If you want to put everything on your mobile phone, money management or budgeting apps are the way to go! They’re extremely easy to use and you’re also able to sync your bank accounts and automate some payments. Thanks to technology, budgeting is so much less complicated than before.
Work out your taxes and set aside money for them
When you’re working your butt off as a freelancer and handling multiple projects at the same time, it may be easy to forget your taxes. DON’T. One of the conveniences of having a full-time job is getting your taxes deducted and filed for you. Because you don’t have this luxury anymore, you need to calculate your taxes according to your income bracket and make sure to file them at least quarterly. You don’t want big tax surprises by the end of the year.
Once you’ve made some extra money to spare, hire a personal accountant who can do the dirty work for you in the future! That’ll be a great investment in your freelance life and will also save you a lot of time that you can use either for more projects or for more rest.
Save right, especially for emergencies
Now that you’ve got a budget for your expenses, you also need savings that you can access for times when income is arriving slower than usual or when freelance projects aren’t coming in as much. Or perhaps there may be instances that you need to bomb a huge amount of money that you don’t necessarily have, like for a major operation, a death in the family, home or car maintenance, and other unfortunate events. Here’s where emergency savings come in. It’s good to open one with a digital bank which lets you earn huge interest rates.
Segregate your income into separate accounts or wallets if possible.
Now that we’re on the topic of savings and bank accounts so that you won’t get confused, it’s best to segregate your income into different accounts or “savings wallets”. Here are some samples:
- Living Account – Used for your daily expenses, from food to utility bills.
- Emergency Account – Used for emergencies only
- Big Expense Account – Used for a big purchase you’ve been itching to buy, like a brand-new camera for photography, concert tickets, or even a plane ticket to your dream destination!
- Retirement Fund – Used for…well, your retirement, of course! We’ll get more into this later.
Prepare for your retirement fund.
Okay, admittedly, if you’re in your early 20s and still starting your big and exciting freelance adventure, retirement may be the farthest thing from your thoughts right now. But if you get started on your retirement earlier, the better! That way, you won’t get worried about growing old and agonizing over what’s going to happen to you when your body is too worn out to do any kind of work.
While it’s cool to start looking at investments that’ll give you huge returns after quite some time, an easier and less risky way to prep for your retirement is to open a time deposit account. While most traditional time deposits offer very low-interest rates, some digital banks now offer up to 6% interest rates per annum. If you start saving now while you’re young, the power of compounded interest can turn your savings into a significant amount when you reach retirement age.
Because you’re now a freelancer, you won’t be getting regular private employee benefits such as health insurance. Be prepared for whatever might happen to you and find the right insurance for you. If you’re just concerned about your health, then prepaid health cards are all the rage for local freelancers at the moment. If you’re a breadwinner to your family or are planning to have kids in the future, then make sure to purchase life insurance so you know your loved ones will always be safe no matter what.
Track every single thing, from income to spending
It might be easy to lose track of your income and expenses when you’re a freelancer. So make sure to keep your records in tip-top shape! Got projects? Write them down and how much your clients owe you, and when they plan on paying you. Got expenses and bills? Track everything on your budgeting app or on your financial Google sheet. We promise it’ll be so much more convenient if you keep tabs on everything. Don’t rely on your memory, even if it’s like an elephant’s!
By following these tips, You will be better prepared for the future financially while enjoying work as a freelancer.