Becoming a freelancer is often a very freeing career opportunity because it offers a lot of flexibility that many other career paths don’t offer.
Successful freelancers will often manage their money by treating their business as a separate entity. By doing so, it protects their finances. However, there’s more to just this main financial habit that protects a freelancer’s career and helps them succeed.
Here are some essential financial habits for freelance success.
1. Bank and organization
When it comes to improving your financial habits as a freelancer, it’s good to make sure your banking is in good shape.
That starts with separating your finances and immediately opening a dedicated business bank account. Keeping your business revenue separate from your own personal spending is essential for tax compliance and tracking your profits. A sole trader business account is a good place to start to keep finances separate.
It’s also helpful to use accounting software like QuickBooks or Kletta to track income and expenses automatically. Scheduling some time to review bank statements, categorize your expenses, and follow up on outstanding invoices all help improve your financial habits.
2. Budgeting and income management
It’s good to budget your money, so pay yourself a salary. Rather than spending money as it arrives, calculate a regular monthly salary based on your average income to create stability and to then perhaps have some emergency funds to set aside.
You should budget for lean months and use a zero-based budgeting approach where every amount earned has a purpose. It ensures you don’t overspend during high-income months, especially.
3. Tax and legal planning
Tax and legal planning are non-negotiable, and you can get into trouble by not following the rules.
Set aside any tax immediately. Treat 20-30% of all incoming payments as money that doesn’t belong to you and transfer that to a separate tax savings account. Pay your taxes quarterly rather than annually, and that way you avoid any unexpected bills as well as potential penalties.
4. Long-term security and growth
For long-term financial security and growth for your freelance business, make sure to build an emergency fund. Aim for around 3-6 months of essential living expenses and pop these in a separate high-yield savings account to help protect against slow periods and illnesses.
Be sure to prioritize retirement savings, too, as this is something you’ll want to accumulate to a healthy amount once you retire.
Don’t forget to diversify your income streams, too, and avoid relying on a singular client.
5. Invoicing and payment
Send your invoices immediately upon completion of the work. You should use tools to track your invoice status and send automated reminders where possible.
Charge for your value, rather than your time. Increasing your rates to account for unpaid time is necessary, too.
As well as all the above, don’t forget about health insurance, paid time off, and, of course, as mentioned, retirement contributions. These financial habits will all help you succeed as a freelancer.
Photo credit: Photo by Rodeo Project Management Software on Unsplash