Freelancing gives you the freedom to work when you want and with whoever you want. But it also comes with its own set of challenges. One of the biggest challenges is managing money. Most likely, you’re a one-person operation. You don’t have the budget for an accounting department, but you also don’t have to worry about payroll taxes.
Still, you have cash flow to manage, and you need to manage it well if you hope to succeed. Here are six tips to help you better manage your money this year.
1. Separate Personal and Business Money
One of the biggest money mistakes freelancers make is meshing their personal and business expenses. Many freelancers have just one bank account. When tax season comes, it can be a nightmare to differentiate between personal and business expenses. It also makes it just a little more challenging to justify the spending as a business expense to the IRS.
Don’t make your life more complicated than it has to be. Keep your personal and business money separate. Deposit the money you want to pay yourself into a personal bank account, and keep the remainder of the money (or however much you want) in a business account.
Keeping your personal and business finances separate will help you keep better track of your spending and make it easier to deduct expenses when doing taxes.
2. Start Preparing for Taxes Now
Speaking of taxes, you should probably start preparing for them now. Failure to budget properly and account for taxes may leave you scrambling for cash when it comes time to pay the IRS.
If you’re in the habit of paying your taxes once a year, you may want to rethink your strategy. Paying your taxes on a quarterly basis will help you avoid fines and penalties that will force you to pay more than you need to.
3. Make a Budget
As a freelancer, your income may fluctuate from one week or month to the next. You may make $1,000 today and just $100 tomorrow. Because money comes in at different times and in varying amounts, it can be challenging to create a budget.
Still, you have bills that need to be paid every month. Setting a budget is crucial. Calculate your average earnings, subtract your expenses, and then set a budget using this figure.
Setting a budget will help you get impulse buying under control, and also help you get on track to reaching your financial goals.
Not sure how to set a budget? Consumer.gov has a helpful worksheet to track expenses and set a budget.
4. Open a Virtual Banking Account
As a freelancer, there’s a good chance that you work with people from all over the world. Having such an expansive network is great for exposure, but it can also put a dent in your bank account.
Consider opening up a virtual banking account that supports multiple currencies. These accounts may help you avoid hefty exchange fees or transfer rates. World First and Transferwise are two companies that are leading the fintech innovation with their virtual account solutions.
5. Create a Plan to Boost Cash Flow
It’s important to implement good money management strategies, but it’s equally important to create a plan that will help you boost cash flow.
There are many ways to increase your cash flow, such as discount promotions and rewards programs. You might also consider adding new services that appeal to a greater market within your industry.
6. Reevaluate Your Spending
Take a look at how you spent your money last year. Sit down and reevaluate some of those expenses. Pay close attention to your discretionary spending to find areas where you can cut back or eliminate expenses completely.
Also, shop around to see if you can find better rates for necessary, frequent expenses. The start of the new year is a great time to find deals that can save you money on these expenses.
As a freelancer, you have to learn how to manage your money properly if you hope to stay in business for many years to come. Without a proper budget, your business may just run out of money. Manage your money wisely, so you can enjoy healthy growth and continued success.
