The financial game is completely different if you are a member of Gig Economy. Here are ten must-have financial tips that every freelancer should know.
By 2027, experts estimate that 50.9 percent of the US population will be working freelance.
Are you ahead of the curve? Do you already work as a freelancer?
Whether you work full-time or just do it on the side for some extra money, you probably know that managing your money can be difficult when you work this way.
If you find it hard to keep up with the times as a freelancer, read on.
Below are ten important financial tips that can help any freelancer make the most of their paycheck.
1. Plan for Droughts
When you work as a freelancer, you don’t always have a fixed workflow that has paved the way for you.
Sometimes you have an abundance of projects on your desk and a lot of money comes in. At other times your projects are few and far between and your income is much smaller.
Make sure you have a plan for this drought – they will come eventually. If you have a plan and money is set aside, you are less likely to panic when they occur.
2. Pay Your Taxes
Ah, taxes. No freelancer likes to think about that. But they are due every year, whether you like it or not.
To avoid a panic attack when the tax season is over and you realize that you owe thousands of dollars to the government, it is important to make sure that you set aside a percentage of your monthly income to pay taxes.
The specific percentage you set aside depends on the amount of money you and your affiliate (if you have one) earn.
Find out your tax bracket and take this percentage out of each paycheck so that you have enough money to pay Uncle Sam. Also make quarterly tax payments. This will help you avoid being hit with a fine from the IRS.
3. Track All Your Expenses
If you know the amount of money you pay to the government each year (and who doesn’t?) it helps to keep track of all your business expenses.
This includes some of your utilities if you have a home office, the money you spend on gas when you drive to meet with customers, and all the supplies you need to buy to run your business.
Save your receipts and use accounting software to track these expenses so that you can deduct them when you file your taxes.
4. Create a Budget
Everyone needs a budget, but freelancers can benefit most of all from tracking their expenses and creating a job for every dollar they earn.
Find out how much you need to cover your daily living expenses and allocate a certain amount of money to cover everything. Make sure you include savings and taxes in your budget.
5. Get Insurance
Many freelancers are not insured. This is very risky and can later lead to serious financial problems if an emergency occurs.
Make sure that you have health insurance, car insurance and tenant or homeowner insurance. It is a good idea to also invest in life insurance, especially if you have dependents.
Besides health insurance, you can also open a health savings account. This is a tax-deductible account that you can use to cover health-related expenses such as co-pays and prescriptions.
6. Save for Retirement
Make sure that you also set aside money for retirement. As a freelancer you do not have the luxury of a 401(k) provided by your employer.
But you can still save for the future, with a Roth or a traditional IRA. If you use a traditional IRA, you can also deduct the money you put into it from your annual tax bill.
7. Get Paid What You’re Worth
At this point, you could look at all the things you buy and save for as a freelancer and think about throwing in the towel.
If you are not sure if you have enough income to cover all these things and still make ends meet, you may need to adjust your rates. Make sure you charge what you are worth from your customers.
Your work is valuable and you provide them with great service. Do some math and find out if you need to raise your rates to get paid what you earn and have enough money in the bank.
8. Separate Business and Personal Accounts
It is very important to separate your business and personal bank accounts.
This will help you keep track of your expenses and ensure that you do not dip into personal money to meet business needs (and vice versa).
It will also make it easier for you to create business and personal budgets for yourself.
9. Use Percentages Instead of Dollar Amounts
If you are compiling a budget for yourself and finding out how much should be allocated to each category, it is better to work with percentages instead of dollar amounts. This is because the income of freelancers tends to fluctuate from month to month.
If you go by dollar amounts, you may have months where your short money and months where you have a bunch of leftovers. Working with percentages makes more sense for most people and helps them make sure they start saving the right amount.
10. Build Your Credit Score
Make sure you take steps to increase your credit rating or keep it high.
As a freelancer, it can sometimes be difficult to get approved for loans because you have no traditional source of income.
However, if you have a high credit rating, you will find it much easier to get the approval you need for things like mortgages and car loans.
Also, work on raising your credit rating for businesses. That way, if you need to take out a business-related loan, you will be able to do so without any problems.
Looking for More Finance Tips?
As you can see, there are many things you can do as a freelancer to save money and maximize your income.
Whether you are a brand new freelancer or have been a freelancer for decades, these financial tips will certainly help you to better manage your money.
Want to learn more about personal finances? If so, visit the Money section of our website today for more helpful advice.
This section is full of useful tips and tricks for anyone who needs help in the money management department.