There are tons of perks to being a freelancer. You can work in an area you’re passionate about, for yourself, and on your own time. That being said, it’s certainly not easy, and can be a hustle to land on your own two feet, especially when it comes to managing your own finances and income.
When you work for a company, there’s no need to track down each paycheck, and taxes mostly revolve around submitting your W-2. If you’re just realizing this isn’t the case as a freelancer, this article is for you.
Keep Separate Personal and Business Bank Accounts
While legally you can use one bank account as a sole proprietor, this can get messy. You will want to know what your personal savings are separate from your operating budget. If you’re inclined toward meticulous tracking, this may not be a problem for you.
Otherwise having a separate business account will enable you or your accountant to plan around (and submit taxes for) your business without digging through personal expenses.
Diversify Your Income Sources and Collect Payments Regularly
As a freelancer, you want to make sure to diversify your income sources so that if one source dries up for a month or two, you have a backup plan. For instance, maybe you have regular clients that you work for on a monthly cadence and then save time for one to five big projects a year.
Since there are only so many hours in the day, building in passive income you can count on without putting in much additional work can also help a lot. Tons of Skillshare teachers are freelancers and passive income is often one of their primary motivations for teaching.
For projects large and small, you will want a clear system for creating and sending invoices to your clients. Do you have a consistent contract or time tracking system that you use? For bigger projects, you may also want to set milestones so that you are paid intermittently and square this away with the client at the start.
Budget Your Expenses
While it can feel tedious, you’ll want to have a projection for your income, your business expenses, and your personal expenses. What frequency are you usually paid on? How much can you afford to pay yourself and on what cadence? What sort of lifestyle are you budgeting for?
If you understand your needs up front, it will enable your decision making indefinitely. It can help you decide which projects to take on, how much to save monthly, and whether that new sweater is worth it.
You can start by going through the last year of your financial statements and answering the following questions:
- How much did you make? On what cadence?
- What were your business expenses? When did they come into play? What were they averaged monthly?
- What were your personal expenses? When did they come into play?
- What was unexpected?
- How often did you pay taxes?
Then, project for the coming year. Write down what you expect to earn each month and how much will you pay yourself to cover your personal expenses.
Once you’ve figured out what money to set aside for personal use, write down what’s left. Break that out and consider how you will use it to keep your business running and invest in growth.
Create an Emergency Fund
A good rule of thumb here is that you want to have at least six months worth of bills in your savings. This sounds like a lot, but start small and save regularly. You work for yourself, and you want to be able to say no to jobs that you aren’t excited about, but you’ll need savings to do so.
Automate as Much of the Above as Possible
OK, so how to actually do all of this? Check out services that will help you automate as much of this work as possible. After all, you want to be able to focus on the exciting and creative part of your work, and spend as little time as possible on administrative tasks.