Being a freelancer nowadays necessitates wearing many hats, one of which is that of your financial planner and decision-maker. You’ll need to plan ahead of time for both professional and personal expenses, as well as keep up with your job.
For instance, working as a freelance marketer enables you to concentrate on creative projects. Despite your preference to devote all of your time to these projects, you will still need to set aside time to organize and oversee your financial affairs.
Why is This Such a Big Deal?
For freelancers, tasks might change from month to month, income can increase or decrease during particular times, client payments can be delayed, and unforeseen needs that require immediate cash can crop up.
With all of this in mind, managing your money could seem tedious or even overwhelming. However, you may improve your chances of success by including the best financial advice for freelancers in your strategy.
Make a Practical Budget for Your Personal and Business Spending
The truth is, you won’t have a guaranteed paycheck each month if you freelance. Cash flow will vary based on the projects you work on and when you work on them.
As a freelancer, a budget is a useful tool that can help you make decisions, stay on track, and make sure you fulfill all of your personal and professional obligations.
Making a reasonable personal budget should be your first step. If you have been a freelancer for some time, consider dividing the entire income from the prior year by 12. This formula will yield your monthly average income. From there, you can plan for your expenses including rent, wifi, utilities, or car payments.
Consider the annual expenses for your freelance business, like paying for gas if you’re constantly on the road for your job, in addition to your personal budget. Don’t forget to include essential expenses like projected tax bills that occur annually or regularly in your budget.
You can determine how much money you must make each month to pay for things by creating a budget. Based on this, you can define your earning targets for freelance work and strive to surpass them.
Plan and Make Quarterly Estimated Tax Payments
Planning for and paying freelancer taxes is a crucial aspect of your financial obligations as a freelancer. These include the quarterly estimated taxes, which are due on April 15, June 15, September 15, and January 15 of each year.
You will need to set aside money each quarter to pay the estimated taxes since you are not a regular employee who has taxes deducted from each payment.
By making your payments on time, you can avoid facing fines from the IRS, your state, or local taxing authorities on tax day in April. Consult the IRS tax form 1040-ES to see what you need to budget for and pay each quarter.
A fourth of the tax liability from the previous year might also be used as your projected tax payment each quarter. If new business comes your way, you might lose some clients, or your time commitment to your freelance business changes. Adjust accordingly when these happen.
Plan for Retirement
Becoming your own boss requires you to think about your future and how you’ll pay for it. The change from working for someone else who handled most of everything for you to having to prepare your own retirement savings plan is a huge transition.
You may have taken part in a matching 401(k) plan or another such program, but now that you’re on your own, you are in charge of making sure you have enough money set aside for retirement.
Take initiative. There are many alternatives available to you. Consult one of our financial advisors at Savvy Financials if you need help.
Look Beyond Health Insurance
Health insurance is now required in the United States. However, to ensure stability, especially when your health is problematic, you’ll need to find out how to fill in the holes in your health insurance. Start by researching the cheapest health insurance you can find. This coverage could be obtained through healthcare.gov, your spouse’s employment, or a group or organization to which you have some connection.
Beyond your health insurance, you should think about what would happen if you become ill or hurt and are unable to finish your job. You won’t have coworkers to delegate your work to or company-sponsored perks as a freelancer. In such cases, you could count on individual disability coverage to supply you with at least a portion of your income.
You should also think about getting critical sickness insurance. For critical illnesses such as stroke, heart attack, and cancer, this sort of supplemental insurance compensates a lump sum.
The payment is intended to offset expenses that are not covered by your personal health insurance, such as taxes, co-pays, lost potential earnings from freelancing, and even daily expenses.
Set Up an Emergency Fund
Throughout the year, freelancing earnings can fluctuate modestly or dramatically. They’re up one minute, then dropping and staying low the next.
You must be ready for each of these scenarios as well as any unforeseen events that may arise, such as emergency medical issues, or equipment or appliances that require repair or replacement.
The easiest way to prepare for such situations is to start an emergency fund and regularly add to it. Today, it’s common advice from a range of financial advisors and influencers to keep four to six months’ worth of money (for living expenses) on hand.
Maintain Separate Business and Personal Financial Files
There are many advantages to maintaining separate financial records for your business and personal finances. Tracking your personal financial expenses might help you uncover areas where you can cut costs or remove them entirely. One advantage of keeping track of your operating costs is that you can deduct them from your taxable income each year.
Look for Opportunities to Diversify Your Income
Think about strategies to diversify your income to aid with expenses. If your freelance job already keeps you busy, think about other opportunities for passive income, like writing an educational eBook and selling it.
Additionally, you should always vary your clientele rather than depending solely on one or two to keep you active. You may build more security in your freelancing cash flow by diversifying your sources of income.
It’s incredibly fulfilling to be your own boss, choose your own working hours, and decide which tasks to take on and for which clients. Freelancing can be exhilarating, but it also requires preparation and self-discipline when it comes to money. These best financial advice for freelancers might help you get off to a great start and maintain it for many years.
If you’re feeling overwhelmed with the thought of managing your finances as a freelancer, you can always count on professionals to help you. At Savvy Financials, we have the best people to help you with your needs. Contact us for more information!