Understanding and dealing with finance can be overwhelming but it is not as complicated. In this article, we will look at a few rules and tips to consider when managing finances as a freelancer:
Being a freelancer means that you wouldn’t have a fixed salary that you will receive each month. Your compensation may vary, ranging from high-paying projects with foreign currency to more modest local assignments. This inconsistency in income makes you more cautious about your spending and planning other aspects of your finances.
Awareness and foresightedness are appreciated in all aspects of life. As a freelancer, you may work on many projects at a time sometimes, but there can also be days when you are not dealing with any projects or a project that pays you later, especially if you are just starting out. There is also the risk of late or no payment at all. This unpredictability makes it more difficult for you to track personal expenses and plan for future commitments.
Create a budget!
It doesn’t matter whether you’re a salaried person or a freelancer, budgeting is always important. Budgeting helps you track personal expenses and manage debt. It also helps you determine whether you are good at managing money or not. It is one of the key elements for a freelancer, to be able to manage and track every aspect of your venture, including finances. Looking at your daily, weekly, and monthly expenses can help you create a budget.
List out the things based on three factors: wants, needs and savings. Wants are the things you desire; Needs are the things you cannot survive without, and savings are how much you were able to set aside from your expenses. This will help you identify and prioritise financial aspects better and filter non-essential purchases.
Savings
Having money saved up in your account gives you a sense of security. It can help you reduce stress when you aren’t actively being compensated for a project. You feel independent. You know you will be able to get through until you manage to earn more without having to worry about your current situation.
Since your income is inconsistent, you can plan to take some percentage from each project and keep that money saved. If you receive money from abroad for an international project, consider saving a slightly bigger portion of it. You can also divide these savings. You can save a small amount within your savings as an emergency fund or taxes.
Investments
Anyone can make an investment, but not everyone makes a wise investment decision. You must always invest some amount of money and think of it as a medium to grow it. It will be helpful for you during difficult times and could help expand your work. You do not have to always invest in places where the masses have; you can choose a method that feels right with you.
Do market research on the kinds of investment options available to you. Speak to people and the kind of investment they have made in the past and their experiences. When you feel like you found a decent option, you may make the investment. It is always necessary to do thorough research first to avoid unnecessary issues later.
Filing Taxes
Taxes can never be neglected. It is a key aspect of finance. As a citizen of a country, it is your duty to file taxes in due time. A salaried professional may not have to worry about taxes as it is usually discounted before they get their salary.
You, however, being a freelancer must do these things all by yourself. It is not as complicated, but you will need to learn how to file an income tax return, and all other things related to it. To know more about taxation, read our blog on dealing with taxes as a freelancer.
Future planning
The future is unpredictable and preparing yourself for any kind of circumstance is important. Planning for your retirement now makes you feel less stressed. Carefully saving your money, making smart investment decisions, getting insured, etc. ensures there is a safer and more secure future for you.
A retirement plan is needed for a freelancer as your income is not as consistent as a full-time employee. Remember to get insurance for you and your family. It may not have the benefits a full-time employee receives, but insurance is essential for any individual. Look for options and do thorough research before making any decision as your future depends on it.
Summing up
As a newcomer freelancer, finances can be worrisome until you have a few long-term clients. Understanding and dealing with finance can be overwhelming but it is not as complicated. You can also use online tools and apps to help with personal finances. Additionally, it is necessary for you to keep your personal and professional expenses separate for your clarity. This can be done by maintaining two different bank accounts.
