We love freelancing and the freedom it brings, but we also are aware that we need to be vigilant with our finances. Whether you’re an artist, writer, or coder, you can’t bury your head in the sand. In an ideal world, clients will pay you on time, but as you probably know, it can fluctuate. The trick is to be prepared for the ups and downs.
Even if you don’t think you’ve earned enough to save up for the security you want, you need to plan even more intently.
2. Keep finances organized with separate accounts. Separating bank accounts lets you section your finances into manageable chunks to help you deal with the highs and lows of erratic earnings. Here are some examples that could help freelancers:
- Business Account: Use this account to collect payments from each of your freelance clients. This is where all your earnings go. Think of this account as your “employer.”
- Personal Account: Use this for your personal income. Instead of transferring everything from your business account, decide on a steady paycheck that your business account can support and only transfer this amount into the personal account at regular intervals. This is how you pay yourself. This will be your “employee” check.
- Taxes: Since freelancers don’t have employers withholding taxes, you need to do this yourself. Having a separate account will ensure that you’ll have the money when it’s time to pay up. Taxes will come from your business account or total savings, not from your personal account. Keep track of your total income and deduct it out into the taxes account before you pay yourself.
- Savings: You need this account. It’s not an option. If you’re saving up with a goal in mind, you’ll probably need a more than one. You should have a safety net of 4-6 months earnings in your primary savings just in case you’re having a slow month.
3. Save where you can. Some freelancers have trouble visualizing how to save if they’re struggling. David Bakke, a blogger for Money Crashers, tells Freelancer’s Union that saving does not have to be that difficult. Look for windows of opportunities. Maybe you can refinance your home and get a better rate with a lower payment. The difference will go into your savings, not disposable income. You can tweak your discretionary spending. Instead of dining out each week, dine in, save $50, and that’s an extra $2,000 you can add to your savings.
4. Don’t put it off. Dealing with finance is probably not your bliss. It takes time and patience to set everything up and can be intimidating to dive into. But the sooner you start, the better you’ll be off.
At 10X, we want all freelancers to thrive, not just survive. And just in case you forgot, October 15 is the final deadline to file your 2014 personal tax return if you’ve filed an extension on or before April 15.