How to Manage Finances While Freelancing

Freelancing is a bold and respectable career path, but it’s not always easy. As a freelancer, you are your own boss, your own marketer, your own public relation department, your own human resources and most importantly your own finance and accounts department. Managing finances while freelancing is often confusing and tough. It’s not a regular job after all; you don’t have a regular payroll salary to rely on.

But that doesn’t mean you can turn a blind eye to sorting your financial pitfalls. Money management for freelancers is as important as virtual networking, cold calling and getting clients is. Read through to find ways that will make managing finances while freelancing a walk in the park:

1. Make a freelance income spreadsheet

First and foremost, make a sheet with two columns to record your freelancing income. On one side list your regular clients and on the other side list your one-off clients. This client mix will act as a freelance income spreadsheet which will give you an estimation of the projected income for that particular month.

2. Calculate average income

Total the income generated from your one-off clients and a half it, then add it to the regular income. Then half the total of that sum. This will help you make an assumption of whether or not the month is going to be a slow month or if you need to increase your marketing efforts to generate more income.

3. Track expenses

Based on the freelance income spreadsheet and your average income you can make a freelance budget spreadsheet. Make another sheet by listing all your personal expenses in several categories like rent, utilities, insurance, transport, food, gifts, and entertaining and keep your business expenses separate like software, electronic equipment, PayPal, advertising fees, and monthly charges on job searching websites. It’s important that you always remember to keep the records on the freelance budget spreadsheet updated.

4. Open four different accounts

The advice that is mostly given when managing finances while freelancing is to create several separate accounts. It may sound excessive but here’s how you could differentiate the four accounts and simplify distributing income:

  • Main Account – put 55 % income into this account
  • Business Account – put 15 % income in this account
  • Savings and Emergency Account – put 5% in this account
  • Tax purpose Account – put 25 % in this account

Emergencies don’t come with a prior announcement, so it’s always recommended to have a little money tucked away for emergencies like a sickness. Also, setting aside money for taxes is a must for everyone, not just freelancers. This method is the most optimal way of money management for freelancers.

5. Automate all financial transactions

You should automate as many of your financial transactions as you can to focus more on your freelance work. Considering most freelancers cannot afford a personal assistant, this is crucial for money management for freelancers. Automating most of your transactions will ensure that you spend more time making money rather than being buried in spreadsheets and bank statements. Nowadays, almost all banks provide online services where you can automate your monthly payments.

6. Hire an accountant

Instead of running to the accountant only during the tax season, have a conversation with your accountant throughout the year to discuss ways in which taxes are deducted and to manage your taxes with ease.

In conclusion

Being your own boss is great; being your own HR is great. Working in pajamas is even better, but money management for freelancers can be a point of stress. Don’t worry. With some extra time and effort, you will be a pro at managing finances while freelancing and have more control of your financial woes.

Leave a Reply

Your email address will not be published. Required fields are marked *