Becoming a freelancer is an exciting opportunity to work on your terms. However, it is important to have the skills and knowledge necessary for success as a freelancing individual. In this blog post, we will cover everything from managing your finances as a freelance professional to how you should handle taxes and invoicing clients. By following these tips, you will profit more.
Set Up A Separate Bank Account
You should set up a separate bank account specifically for your freelance business. This is important because it helps you keep all of your income and expenses in one place, but also allows you to easily track what’s going on with your financial situation. It can be extremely easy to lose track of money when the only thing coming into this account are client payments, which will vary from month to month. You don’t want to have any surprises after every pay period, so being organized is key. Invoices are also important to receive payments, so you need to make sure that they are always sent. If you need any assistance with creating them, look for an invoice generator online, so you can make professional invoices. Having an actual budget dedicated just for yourself can help tremendously as well since freelancers typically operate under more flexible budgets than traditional employees who receive salary checks each month.
Transfer Your Income
There are two main reasons why you should transfer your income to a personal bank account. The first reason is so that we can properly track our earnings and expenses because having everything in one place makes it much easier to do this. It’s also highly recommended by money experts, such as Suze Orman because putting yourself on an allowance will help you stay within the budget.
The second reason for transferring your income over is to protect yourself from any risk of overdraft fees or other penalties associated with not being able to meet minimum balance requirements at some banks. If you keep all of your money in just one account, then there won’t be any problems if something does go wrong when trying to withdraw cash, since there’s always enough money in the account. However, it’s important to transfer your income over right away because if you don’t then there’s a chance that your bank might freeze your accounts for not meeting their minimum balance requirements.
Save Your Tax Refund
There are tons of ways that you can use your tax refund, but the best way to save it is by opening up an IRA (Individual Retirement Account). There aren’t many people who invest their own money because they don’t know where to start. It’s much easier than you think, though, and there are lots of great options out there for beginners as well. If you want a step-by-step explanation on how to open up an IRA, then feel free to check out this guide.
You should also make sure that you’re not spending all of your refunds right away, because it’s going to take some time for the money to be deposited into your accounts. If possible, try putting as much of your tax refund as you can towards paying off debt such as credit cards and student loans. This will help reduce any future payments and overall lower financial stress in the long run since there won’t be anything holding you back from being able to save more money each month.
Keep Good Records
A lot of freelancers are often too busy with their clients to think about the future, but you must get on top of your business finances, so they don’t become a burden. To keep good records is an essential part of any type of business, whether you have one client or ten thousand. There are many benefits to keeping great financial records for your freelance career. The main ones being: having some sort of idea of where your money goes each month, staying organized and up-to-date with all finance-related matters, simplifying how much tax you pay at the end of the year by minimizing expenses claimed against taxable income (i.e. using receipts), taking advantage of such as claiming allowable expenses as input tax credits (i.e. business expenses), which means you will pay less GST. And finally, it allows freelancers to keep their ear to the ground when it comes to changes in legislation relating to taxes and superannuation for self-employed individuals.
Set Up A Retirement Account
Most freelancers are not set up for retirement. They do not have an employer to take money out of their paycheck and put it in a tax-deferred account somewhere, so they don’t even think about it.
Freelance workers have two main options when planning for retirement. The first option is to open an IRA. To do so, you will need to find a brokerage that offers IRAs and set up the account yourself. This can be done without much effort, but there are some trade-offs: most options charge fees for withdrawals before age 59 ½ (which is not good if your income goes down), and many of them also have caps on how much you can contribute each year (although, again, this won’t be as big of a problem for freelancers). Option two is to make use of SEP or Solo 401(k) plans. If you’re self-employed with no employees (and limited liability companies like S-corps generally don’t count because they’re considered pass-through entities), you might be able to open one of these. The tax benefits are similar to IRAs (they’re both “pre-tax” retirement plans) but they typically have lower fees and higher contribution caps than most IRA accounts, making them a good option for self-employed workers with irregular income flows.
Keep Your Eyes On The Prize
There are countless tips on how to manage your money as a freelancer, but few of them have real-world merit. Whether it’s being more conscious about avoiding impulse purchases or planning for the future with investments and retirement funds, you need to recognize that these measures will help you stay afloat in both good times and bad. One thing is certain: if you want this lifestyle to last (and we think you do), then don’t get yourself into any financial trouble at all costs.
One of the great things about freelancing is that you get to decide your own hours and what projects work for your schedule. You can go on vacation when you want, maybe not even take a day off at all. If only it was this easy with traditional jobs… The downside? As a freelancer, there’s no one else looking out for your best interest. You have to be the one who makes sure you stay on top of things, and that’s where proper bookkeeping comes in.
