Want to be a successful freelancer? Follow these financial tips
What's the story
Freelancing comes with its share of flexibility and independence, but it also comes with a caveat: one needs to manage finances wisely to stay afloat in the long run.
If you don't have the right strategies in place, navigating the financial landscape could be tough as a freelancer.
Here are five must-follow dos and don'ts that can help you manage finances well.
Step #1
Set clear financial goals
Establishing clear financial goals is essential for freelancers.
Be clear about what you want to achieve, short-term and long-term, such as saving for retirement or buying equipment.
Having set targets keeps you grounded and focused on what you need to achieve financially.
Regularly assess your progress toward these goals so that you can make necessary adjustments in your budgeting or spending habits.
Step #2
Maintain an emergency fund
An emergency fund is crucial for freelancers considering the unpredictability of income.
Try to save at least three to six months' worth of living expenses in a separate account.
The fund serves as a safety net during lean periods or unforeseen expenses, allowing you to meet your basic needs without turning to debt.
Step #3
Track income and expenses diligently
The most important part of managing your finances is keeping accurate records of all income and expenses.
Maintain accounting software or spreadsheets to keep track of every transaction related to your freelance work.
This practice not only helps you budget efficiently but also simplifies tax filing by providing clear documentation of your earnings and deductible expenses.
Step #4
Set aside money for taxes
Since freelancers handle their own taxes, they need to set aside a portion of every payment they receive.
They should calculate an estimated percentage according to their tax bracket—usually, around 20% to 30%—and deposit that amount into a separate account that's only for taxes.
This way, they'll be ready when the tax season comes.
Step #5
Avoid mixing personal and business accounts
For freelancers, separate bank accounts for personal and business finances isn't just beneficial, it's imperative.
This separation simplifies tracking all business-related transactions, making tax preparation a whole lot easier.
It also gives a clear picture of how the freelancer's business is really doing, as opposed to how their personal spending habits may have skewed things.
This clarity is priceless for financial planning and gauging the health of the business.