Planning life in advance with an unstable income is not easy. But it doesn’t mean it’s entirely impossible. Here are some tips from financial experts to improve every freelancer’s money situation.
Know your expenses
List all your fixed monthly expenses: rent, phone, paid apps, etc. These are called your ‘nut’, or the amount you need to earn to cover what can’t be postponed. Create a separate list with important but more flexible expenses: groceries, gas, etc. When the income is light, you can make ends meet by moving the latter around or cutting back things that can wait.
Have a separate account for work expenses
Allocate a special bank account for business expenses, like your website domain, accounting software and other software for freelancers and small businesses. Never use it for rent, food or other personal expenses. No matter how big or small your latest paycheck is, make sure you always transfer a part of it to this account to avoid the stress of not being able to pay for valuable services in time.
Save for taxes in advance
Many freelancers swear it’s the single most important advice they’ve ever been given – to put aside 30 percent of every payment you receive for tax purposes. When it’s time to pay your taxes, you won’t have to worry about where to find the money. Moreover, the final amount is always a little under 30 percent, so you’ll find yourself with some extra savings, which is always a nice bonus!
Some financial experts recommend to have FIVE separate accounts for freelancers:
– Tax account where you deposit 30% of every paycheck
– Living account that covers your personal expenses, like food, entertainment, medical expenses, etc.
– Business account where you keep the money you’ll need for your business operations and payments
– Retirement account, which might not seem like the most important one at the moment but, trust us, if you open it now, you’ll thank yourself in 50 years
– Savings account, where you keep the money you ‘never touch’. Well, at least until it’s time for your vacation, buying a new car or the emergency repairs of your water heater.
Write it off
There are a lot of smart ways for freelancers to get back a little of what they’re spending, like a tax deduction for having a home office or GST return on business expenses that include purchasing equipment or having a business lunch with your customer. Consult your accountant in advance and make sure you save every single receipt!
Set goals
Yes, a freelancer’s income is unstable but it doesn’t mean it’s all chaos and surprises for the rest of your life. You can still have a financial plan and financial goals based on your estimated expenses and earnings. Have separate goals for a month, three months and a year and revise them every now and then. These goals will help you stay focused and motivated and will give you a rewarding feeling of satisfaction and pride when your reach them. But remember – plans are not set in stone! If you have to adjust them – that’s also fine.
Don’t give away your time for free
Talking about money and payments is what many freelancers find to be the hardest part of their job. But it’s time to overcome your shyness and make sure you’re not only getting paid for a job well done but also for the time spent on discussing and organising everything. After all, it’s also your work time! Start every discussion by negotiating the money you’ll need up front to cover the time you’ll spend on coming up with the ideas and propositions – usually it’s around 10-25% of the final payment. Or include a cancellation clause in your contract, obliging your client to pay up to 25% even if the project falls through. This way you won’t spend weeks on dead-end emails, meetings and discussions without being paid.
Plan your vacations
Freelancers tend to neglect personal wellbeing and rest in favour of doing more work. But switching off and recharging your batteries is important if you want to avoid burnout. When your income is unpredictable, you need to predict your vacation expenses in advance. If you know you’ll need, say, $2,000 on your annual holiday, make sure you save it before taking the days off. ‘Cause though there is no one else to deposit money into your bank account while you’re enjoying your free time, it doesn’t mean you can’t do it yourself in small amounts throughout the year.
Never stop searching for new clients
Even if you’re working 60 hours per week right now and have a couple of ‘big fish’ clients that provide you with financial stability, do not let yourself relax. Keep an eye on potential clients to reach out to, keep networking, keep your business visible. You never know what might happen and you don’t want to become too dependable on your current clients.
Get professional advice
No matter how long you’ve been freelancing, there is always something new you could learn or an area you can improve on. Haven’t had an accounting talk for a while? Pay a visit to a professional! Attend your local business networking event. Find a mentor in your industry or attend our upcoming workshop ‘Visualise Your Dream Life’ to help you set some goals for 2021. Do not avoid help and advice just because it seems like you know what you’re doing.
