Today, over 57 million Americans are freelancers. More and more people are leaving their 9-to-5 jobs and turning to freelance work instead. After all, freelancing is a great way to be your own boss and make your own hours. Perhaps you’ve done so yourself but aren’t sure how to manage money as a freelancer. Freelancing comes with a unique set of challenges, with one of the biggest pitfalls being money management.
You have to manage your income and expenditures all on your own–without the help of a payroll department or corporate finance team. While sticking to tight budgets (and occasionally taking the DIY approach) can save you money in the short term, being organized about how you handle finances is essential for long-term success as a freelancer.
So if you’re ready to take control of your finances as an independent contractor, you’re in the right place! This blog post was created to help you know how to start organizing. In it, we’re going to provide you with creative ways to streamline your freelance money management process as well as give you some overall great tips that will set you apart from the crowd.
Have a Separate Business Bank Account
You might think it’s easier to have all money coming in and out of a single account. And it can be… at first.
But when it comes time to do bookkeeping, you’ll find yourself stuck for hours sorting through a complete mess to determine what’s personal vs business charges.
One of the best ways to avoid this problem altogether is by separating you from your business. That means having a separate bank account specifically for your business’s financial transactions. This will help you in many ways, including providing you with quick access to funds when needed, allowing for better tracking of spending, and ensuring that taxes can be filed quickly.
Having a designated bank account also gives you the ability to responsibly manage your business’s budget and create savings plans based on your income, which can ultimately lead to greater financial stability.
The need for a separate bank account is even more critical during tax season or when applying for professional licenses. Plus, having an independent checking and/or savings account associated with your business helps protect your personal assets should any legal issues arise due to contract or client disputes.
When opening a new bank account for your business, consider choosing an online bank account. This option comes with several benefits. For starters, you can access it from anywhere in the world. That means that if you like to travel, you can rest easy knowing you can access your business account at any time. You can also access up-to-date spending and savings accounts with ease, which eliminates the need for any physical cash or checks. The convenience of mobile banking even allows for more efficient tracking of expenses and income in real-time.
Not only does this give you greater peace of mind that your accounts are all in good shape, but a better handle on your finances also allows you to plan better for future financial decisions. Plus, many online accounts offer far lower fees than traditional accounts, helping you save more money in the long run. All of these reasons make choosing an online bank account ideal for freelancers who want to keep their personal finances under control.
Have a Good Client Invoicing System
As a freelancer, you’ll probably handle multiple clients at any given time. It can be hard to keep track of who owes you what, so make sure you use a good client invoicing system, even if that’s just Microsoft Excel.
Without it, it’s basically impossible to know when to send invoices and to keep track of what has been paid or what’s pending. With an up-to-date billing and payment system in place, you can successfully keep track of your company’s finances, ensure timely payments and develop a more professional reputation with your clients.
What’s great is there are many free programs out there, such as Wave and Indy. If you want something a little more advanced, Freshbooks is a great one too. You have to pay a monthly subscription to use it, but it’s very affordable. Quickbooks is another excellent option and offers all the capabilities you could ever need and more. But it’s a little more expensive, and if you’re just starting out, any of the free options and/or Quickbooks will cover everything you need.
Either way, having one of these invoicing systems will make it easier to keep track of what work was done and how much you should be paid. You can even schedule invoices to be sent out, as well as payment reminders if clients haven’t responded.
You can also use these invoices to help with reports for income taxes too! Not just that, but many of these invoicing systems come with easy-to-read dashboards where you can see how much you’ve earned in any given time period, such as the day, week, month, quarter, and year.
Put Away Money for Taxes and Savings
As a freelancer, one of the most important responsibilities for managing finances is to save money.
If you’re not consistently putting money into savings, it can be difficult to manage and plan for your finances when uncertainties arise. For example, you might have high income during one week, and then bring in nothing the next. Lack of steady and reliable income is one of the main drawbacks of freelancing, so no matter how well you learn how to freelance, you have to account for the random patterns in your income. Sometimes, it may just be that you’re still waiting for a client to pay. Or it could be that the market is experiencing a lull and you’re not getting much work. Whatever the circumstance may be, the best way to mitigate these issues is by keeping plenty of money in your savings account so you always have a backup.
In addition to preparing for unexpected events, you should also be saving for taxes so when tax season rolls around, you won’t be scrambling to come up with the funds to pay it. A good rule of thumb is to put away at least 30% of your freelance earnings to go toward taxes. If you don’t use it all come time to pay the government, then you can be one step ahead for the next year. But by doing this, you’ll save yourself a lot of stress and headaches.
By putting away funds in savings and setting aside money specifically for taxes, you will be better able to manage and take control of your finances, even when problems arise.
If you’re working freelance, no one is taking money out of your check for you and investing it for you. That means you could be at risk of ending up with virtually no retirement, if you’re not careful.
Luckily, there are ways to ensure this doesn’t happen to you. We’ve covered this topic in depth in our post on Tips For Saving For Retirement, so definitely be sure to check it out. There are also platforms like Wealthfront, which is designed to help you manage your retirement and make it super easy to do.
As a freelancer, I use Wealthfront myself, and it makes my life so much easier. I get better returns with fewer fees, thanks to the platform’s robo-investing abilities.
Use this link and get your first $5k managed for free. You can start with just $100 and I promise you will love the platform and the extra money your investment can make.
Freelance Money Management Is Easier With These Tips
As a freelancer, you wear many hats and have to be your own boss. This can be both good and bad when it comes to managing your finances. On the one hand, you have more control over how much money you make. On the other hand, you are also responsible for making sure that money is managed properly. Proper financial management as a freelancer is key to ensuring long-term success.
There are several creative ways that you can organize your finances as a freelancer in order to stay on top of your game financially. By keeping a separate business bank account, having a good client invoicing system, putting away money for savings and taxes, and saving for retirement, you can set yourself up for financial success as a freelancer.
Follow this advice on freelance money management, and you’ll have a better time managing your finances. As a result, you’ll have more confidence and peace of mind doing what you love most!
Want some help on how to be a successful freelancer? Then apply to School for Freelancers today. In the meantime, check out the rest of our blog section for more freelancing guides.
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