As a freelancer or self-employed worker of any kind, there are skills you need to learn beyond providing your services or selling your goods as best as possible. For instance, you’re entirely responsible for your own money and how you manage it. Without a reliable wage, it can surprise you how you might run into some financial trouble. As such, here are a few tips on how to manage your money actively, so it causes you a lot less stress throughout the year.
If You Have Fluctuating Income, Plan For It
Depending on the nature of your work, you may not have a steady paycheck. Even if you get paid regularly enough, the shifting nature of demand for your services might see you have peak seasons and slow seasons. When you’re accounting for the year ahead, trying to track average monthly earnings across the board. Otherwise, you might feel flush when you’re in your peak, but in dire straits when things slow down. Use those high-earning months to cover upcoming expenses and put aside savings to help you get through those leaner periods of the year. Being more consistent with your financial habits can help you maintain a steady way of life just as much as consistency in salary can.
File Your Taxes Early
One of the biggest headaches new freelancers face is having to handle their own taxes. You don’t have an employee to do any of it for you, so you have to track all of your accounts, do your own taxes, and then pay them off. Waiting until near the deadline to both file and pay your taxes can cause unnecessary stress. As soon as you’re able to account for a full tax year, you should file it off. Then, you’ll have months to pay it off. Paying it off gradually, as best as you can, saves you the stress of having very little time to pay a large sum of money. Early filing also makes it a lot easier to catch deductions you can make on business expenses.
Start Saving For Retirement Right Now
You’re not going to have the benefit of any employer-sponsored retirement plans, so the earlier that you start putting money towards your eventual retirement, the better. Whether it’s an IRA or something else, long-term savings are vital. Regular contributions, even if they’re relatively small, allow you to start benefiting from compounding interest as best as possible. Steady, small deposits today can eventually lead to greater financial independence down the road. You might even want to set a minimum transfer every month that you automate, so that you never make the mistake of putting nothing towards your retirement. Once you begin to build up retirement savings, you might want to talk to a financial adviser who can help you craft a strategy that best fits your income pattern.
Keep Your Credit Healthy
Although you want to avoid weighing yourself down with too much debt, having open access to some lines of credit can be very helpful. Be it credit cards, same-day loans, or otherwise, it can be highly valuable to have tools that allow you to bridge short-term cash gaps due to things like delayed payments or a low-demand period. Using credit well is about using it strategically, rather than as a habit, which can end up costing you more than it should. Using credit when it makes sense, and always with a repayment plan in mind, allows you to build a history and score that can expand your financing options down the line, too. A good credit history can be vital for freelancers looking to get a mortgage, for instance, as it provides proof of your financial reliability when you lack the steady salary of employees.
Put Together An Emergency Fund
While it’s a tip that really should apply to everyone, freelancers are a little more prone to financial instability, so an emergency fund is extra vital for you. It should typically cover about three to six months of expenses, and you want to build it bit by bit in a high-yield savings account that still allows for quick access when you need it. This way, unexpected lifestyle costs like medical bills or the sudden loss of all your income for one reason or another won’t force you into debt. Automate small, regular deposits into the account until you reach your target.
Separate The Personal From The Business
A lot of freelancers live directly off the money they make for their business. If you make about enough to meet your lifestyle needs, that isn’t the worst thing. If you do plan to expand, however, or you have business investments (such as buying regular supplies, or upgrading or replacing your equipment), then it may be wise to set some money aside into a business account. At the very least, you should make sure that you track your business expenses separately, by using an expense-tracking app, for instance. This way, you can make sure that you’re keeping track of deductibles, and you can also begin to make plans for reinvesting profits, be it into marketing or otherwise.
Build Up Your Long-Term Security
Without employer benefits, you are going to need insurance to take care of yourself. This might include insurance for the equipment you use to work with, or even income-protection insurance to guard against the loss of income. There are private providers as well as freelancer associations that can offer rates adjusted to your earning patterns. Long-term stability is something that freelancers are not guaranteed, so you have to make sure that you build it up bit by bit. Professional liability insurance might be a big part of that, as well, especially if you work with clients whose livelihoods or even health and safety can be affected by your output.
A little financial literacy and forward-thinking go a long way as a freelancer. If you’re stressing over money, even if you make enough throughout the year, then you likely need to address how you manage it, rather than just constantly pushing to make more.