Freelancing is often touted as an incredible lifestyle replete with luxury schedules, work-from-home options, and the ability to have a greater sense of control over your career.
[T]here’s one major factor that often holds potential freelancers back from making the leap: finances.
For all the benefits, though, there’s one major factor that often holds potential freelancers back from making the leap: finances.
If you’re thinking of becoming a freelancer (or you recently became one and feel that you’re in way over your head) don’t worry.
In this industry, fretting over finances is as common as breathing.
Fortunately, it doesn’t have to be that way. If you can stick to your guns — and follow the tips below — you’ll be able to set yourself on a firm financial footing as you watch your freelance career take off.
1. Create a Financial Plan
You can’t succeed in reaching frugal financial goals if you don’t even know what those are. That’s why, before you send an invoice or set up a bank account, you should start by creating a freelancing financial plan. This should have two distinct portions: short- and long-term goals.
Short-term goals should consist of things like:
- Setting up a solid budget that has goals and helps you live below your means.
- Gauging your wants and your needs — what is necessary and what can you let go of if money gets tight?
- Finding ways to save money, such as renegotiating your car insurance or lowering your grocery spending.
Long-term goals should focus on big-picture items, such as:
- Saving up an emergency fund for when you’re in between clients.
- Considering what corporate-esque benefits you actually need, like health insurance, and what ones you don’t, like your own parking space or an expensive coffee subscription.
- Setting up a self-directed IRA or another non-401(k) retirement option.
Your financial plan should be both ambitious and realistic. Consider what you need tomorrow, next month, and thirty years from now. This will give you a clear picture of what you must accomplish with your business.
2. Establish Your System
Once you have a clear plan in place for how to maintain a frugal freelancing lifestyle, you can begin building the system that will help you accomplish it. This includes basic financial activities like:
- Setting your rates: From writing to dog walking, it’s important to do your industry research and set competitive rates. This will help you get clients and still pay your bills.
- Selecting the right tools: You’ll need to select a tool for everything finance-related. This includes things like generating invoices, tracking what you’ve earned, receiving money, and making quarterly tax payments.
- Creating your financial formula: Every freelancer goes about receiving their income in different ways. Consider your own preferred method of getting paid. Will you request a deposit upfront? Do you need payments quickly? Do you prefer to wait until the end of the month or use a recurring schedule?
As you consider these factors, you can begin to build a system that will ultimately help you reach your frugal financial goals — without giving you a headache in the process.
3. Organize Yourself
Finally, once you have both a financial plan and system in place, take the time to organize everything. Left unattended to, your financial files, documents, and applications can quickly become cluttered — which is a really bad idea.
Remember, you’re using them to do things like track payments, collect money, and pay taxes. If you under prioritize them, you can end up making mistakes or missing out on receiving the money that you’re owed.
As you go about organizing your freelance finances, make sure that every part of the payment process is addressed.
Do you have a business bank account to keep your professional cash separate from your private interactions?
Do you have a clear understanding of how you’re going to receive payments from each client? Do you have spreadsheets or paperwork tracking what you’ve made versus what you’ve been paid?
Once you have everything initially organized, it’s also a good idea to plan on regularly reviewing your system.
Schedule monthly or quarterly times to check-in on your finances. Make sure your system is holding up under consistent use. Is there anything that you can improve?
This consistent attention will keep your finances operating like a well-oiled machine and help you avoid any potential financial disasters from building up due to neglect.
4. Manage Your Money The Right Way
As a freelancer you might be confused with the business side of things. Is your freelance business an LLC? How much do you save for taxes? How much should you charge for your services?
These questions and more should be answered before you start making money with your freelance business.
If you decide to do freelance writing you can check out Elna Cain’s post on managing money as a freelance writer to get on the right foot.
Dominating Your Finances as a Freelancer
The truth is, freelancing doesn’t have to be a financially scary prospect.
If you can take the time to set the stage, gather your tools, create a plan, and stay updated and organized, you can manage your finances as well as any successful entrepreneur.
When this happens, it’s much easier to remain frugal and responsible throughout your financial interactions.
The important thing is that you take the time to actually invest yourself in the financial part of your freelancing lifestyle.
Don’t just treat it as a bother or a chore. Consider what it is that you’re trying to accomplish financially, and then steer your efforts toward bringing those goals to fruition.