How to manage finances as a freelancer in 2024

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Freelancing is a blessing and has many perks, but it can also be a financial challenge, especially at the very beginning. If you’re not fully aware of what you are doing, losing touch with reality can be an issue and can also cause problems. That’s why, in this guide, we want to give a few tips on how to manage your money as a freelancer.

Bear in mind: these are general tips that work perfectly for every freelancer, regardless of the niche or specific skills. They can always be refined and customized, but these money management tips for freelancers will guide you and let you feel safe and with a correctly working financial routine.

What are the best finances management tips for freelancers?

Here you have our list of the best money management tips for freelancers: we haven’t included anything about personal insurance and retirement plans because we want to stay focused on the topic of basic savings and survival.

The question of getting insured and having a retirement plan requires a completely different approach and discussion.

1. Set aside money for taxes

Setting aside money for taxes is probably the most essential and useful tip on this list: taxes are a source of stress, and they are even more stressful for freelancers. We don’t have an employer withholding taxes for us, and we’re responsible for our transactions.

Make sure you set aside money for your taxes, both the ones you pay regularly and the ones you pay once a year.

You can even open a separate bank account to deposit money to pay your taxes: for example, if you are in Europe and you have to pay VAT, you will add VAT to your invoice. The minute you receive the payment, transfer the money you got for the VAT to this separate bank account, and you’ll use them to pay your VAT-related taxes when the times come.

2. Take track of your income

Freelancers have the duty to take care of and track their income to ensure they know how much they are earning, how much taxes they may pay based on the income, and how many things they can deduct.

Also, if you take track of your income, you know how flexible you can be in accepting new clients, lowering your fees and making a living as a freelancer.

Simple invoicing software can be helpful because as soon as you send out an invoice, you have registered the income you got: if you look at all the invoices you sent, you know how much you’ve earned in a given period and plan accordingly.

Some of the most used invoicing software for freelancers:

• PandaDoc;
• HelloBonsai;
• AND.CO;
• Freshbooks

• You can read more about invoicing tools in our article: The Best Invoicing Tools for Freelancers.
• If you’re looking for accounting tools, read our article: The Best Accounting Tools for Freelancers.

3. Take track of your expenses

Taking track of income is useful, but taking track of expenses is also incredibly helpful. Not only will you know how much you’re spending and for what type of things, but you can also check on the things you may deduct because they’re part of your business.

For example, if you’re self-employed and working from home, in certain countries, you can deduct your rent and utility bills: so you need to keep track of how much you’re spending every month to calculate your financial situation.

4. Define a budget

It may sound strange to hear, but having a budget in place can be very helpful: you don’t need to be obsessed with it, and you must stay flexible within your budget, but allocating money is an excellent way to control your finances and play safe.

For example, you may decide to spend a certain amount of money on buying clothes every month or a certain sum to purchase travel tickets: it’s your choice, and nobody can tell you what you do and how to spend your money. But you want to give yourself a limit to ensure you don’t go overboard and you don’t end up paying too much without thinking in the long term.

5. Set up an untouchable fund

All the points above lead us to the following: set up an emergency fund, which means saving a certain amount of money every month and making sure this is a goal for you. It doesn’t have to be a considerable amount, but something that you feel comfortable working with.

At the end of the year, you may have saved a significant sum that you can use for whatever you like or that you can keep in your bank account for future needs. Remember: don’t get stressed out if you cannot save money on a given month; be flexible!

6. Bonus Tip: Do not overspend just because you earned more

A good strategy for every freelancer out there is not to overspend the minute you start earning more: you should keep your rules and habits in place and establish the same routine to avoid problems. Just remember that freelancing means instability, so you may end up making a lot of money in a given month and making zero the month after. Having a plan and always staying vigilant it’s the only way to be safe without necessarily tightening the belt.

How do freelancers pay less taxes?

As a freelancer, there are several ways you can potentially reduce your tax burden. One way is to deduct business expenses from your taxable income. This includes office supplies, equipment, software, and travel expenses that are directly related to your business. Another option is to take advantage of deductions such as the home office deduction, which allows you to deduct a portion of your home expenses if you use a dedicated space in your home for work.

Incorporating your business is another way to potentially reduce your tax burden. By incorporating, you can take advantage of certain tax benefits, such as deducting salaries and bonuses as business expenses. You can also use retirement plans, such as IRAs or SEP plans, to save for retirement and potentially reduce your taxable income.

It’s also important to monitor your tax brackets to ensure you are not moving into a higher tax bracket. By spreading income across different tax years, you can potentially avoid moving into a higher tax bracket and pay less in taxes. Finally, working with a tax professional can help you understand the tax code and find ways to legally reduce your tax burden, including tax planning and taking advantage of all available tax deductions and credits.

How do freelancers manage payments?

Freelancers can manage payments in various ways depending on their preferences and the payment methods available to them. Here are some common ways freelancers manage payments:

1. Payment platforms: Freelancers can use payment platforms such as PayPal, Payoneer, Stripe, or Wise to send and receive payments. These platforms allow clients to send payments directly to the freelancer’s account, and the freelancer can withdraw the funds to their bank account or debit card.
2. Invoicing: Freelancers can create invoices to request payment from their clients. They can use online invoicing tools such as PandaDoc, Freshbooks, Bonsai, or Wave to create and send invoices.
3. Contracts: Freelancers can use contracts to establish payment terms with their clients. The contract can outline payment deadlines, payment methods, and late payment fees.
4. Direct deposit: Freelancers can receive payments through direct deposit if their client offers this payment method. The client can send the payment directly to the freelancer’s bank account.
5. Payment upfront: Some freelancers require clients to pay a deposit or the full amount upfront before beginning the project. This can provide the freelancer with a level of security and ensure that they are paid for their work.

Overall, freelancers have many options to manage payments. It’s important for them to choose a method that is secure, reliable, and convenient for both themselves and their clients.

Does being a freelancer mean you always have to pay attention to how much you spend?

No, or at least no more than for other types of jobs. Being freelancers mean taking care of your financial situation to avoid not having the money to pay taxes or to live daily: too many people think that when you’re a self-employer, you’re so free that everything else doesn’t matter. It’s real, but money matters, and we need to be able to spend strategically and play strategically because we won’t have an employer taking care of our taxes. So, being a freelancer doesn’t always mean frightening and fearing not having money but being conscious that this is a profession that can bring a lot of money in a certain period and suddenly bring no money anymore for a long time.

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