Life as a freelancer can be very similar to running your own business. You need to continually advertise your service to attract new clients, and you need a business plan to ensure that you keep yourself on the right track as your client list continues to grow. Freelancers even need a sufficient budget to keep their cash flow steady as they invest in new ways to expand their operations.
If you’re just starting life as a freelancer and you’re wondering how to keep your finances in order, then you’ve come to the right place. The freelancing life can be complicated, unpredictable, and stressful, as well as exciting and diverse. Make sure you’re ready for anything with these top tips.
Get to Know Your Clients
The clients are the life and soul of your income as a freelancer. It’s up to you to make sure you know as much about these people or companies as possible. Familiarise yourself with the schedule that your clients use to pay their invoices, so you know when to expect money to arrive in your business bank account. If you know that most of your invoices are paid at the end of the month, for instance, then you might arrange to have expenses come out of your business bank account at the same time, so you don’t leave yourself in the minus column.
Remember to keep a note of any clients that are regular late with their payments or miss payments entirely too. Although it might be challenging to say goodbye to these clients at first, you may need to cut them loose in the long-term.
Keep Business, and Personal Accounts Separate
One of the most important things you can do when you become a freelancer is to open a separate business account for your career. This is where your business loan payments will go, as well as the money from your invoices and clients. You can also use this account to make purchases when you need to pay for things like business broadband, supplies, and marketing campaigns.
Separating your personal and professional accounts will make it much easier for you to track all of the expenses related to your business. It also means that you won’t have to rely on your accountant as much for help at the end of the year when the time comes to deal with your taxes.
Make Sure You Have an Income
When you first launch your business, you might find that all of the money you make goes back into the company – leaving nothing left for you and your family. While strategies like that can work for a little while – you will eventually need to find a way to give yourself an income. After all, you have bills to pay in your personal life too!
When your company starts to make a profit – no matter how small, look at how you can give yourself a set salary every month. Depending on how your business is structured, you may need to pay yourself a certain amount each month, then give yourself extra through things like dividends. You can talk to an accountant about your options here.
Create an Emergency Backbone account
Having an emergency savings account is a great budgeting tip for anyone – but it’s particularly important when you’re a freelancer. When you’re not sure how much money you’re going to have coming into your home each month, you need to ensure that you have a cash cushion that you can rely on if things slow down at work. You never know when you’re going to lose clients, or when they might decrease the amount of work they need you to do, for instance.
Your backbone account will give you something to rest on when things get tough. It will ensure that you can continue to pay crucial bills and taxes on time and reduce your risk of your business going south. Although it can be tempting to give yourself a little financial bonus every time something goes right for your company, focus on sending any extra money to your backbone account first.
Save for your Retirement
As well as putting cash away for the rainy days in your business, you should also be dedicating as much cash as possible towards things like your retirement. Remember, freelancers aren’t enrolled into any existing retirement plans with a company like a traditional employee. It’s up to you to make sure that you have something in place for your future. You should aim to save about 10% of your income each month – or more if that’s possible.
Whatever you do, make sure that you don’t leave your retirement and tell yourself that you’ll start contributing to it later when you make more money. Even if you’re just putting $20 a month away – start early. The more you invest into your retirement now, the easier it will be for you to manage your expenses in the long-term.
Keep Track of Everything
Finally, just like any with budget, when you’re a freelancer, it’s essential to keep track of the changes in your incoming and outgoing expenses. For tax purposes, you’ll need to keep track of all your invoices and receipts anyway. However, it’s essential to pay close attention to the times of the year when you’re most likely to make a lot of money, and which times you’re more likely to lose cash.
The more you learn about your expenses over time, the easier it will be to make informed decisions about your finances. The good news is that there are plenty of pieces of software on the market today that you can use to professionally track your business finances without the help of a book-keeper. If you’re worried about using this kind of technology – particularly when it comes to dealing with things like taxes – consider hiring a professional accountant instead. Your accountant will also be able to offer advice on how to expand and grow your company.
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