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, and they work perfectly for every freelancer, no matter what’s the niche or the specific skills. They can always be refined and customized, but these money management tips for freelancers will be useful guidance for you and will let you feel safe and with a correctly working financial routine.
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6 Best Money Management Tips for Freelancers
Here you have our list with the best money management tips for freelancers: we haven’t included anything about personal insurances and retirement plans, because we want to stay focus 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 tips of 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 where to deposit money to pay your taxes: for example, if you are in Europe and you have to pay VAT, then you will add VAT to your invoice. The minute you receive the payment, transfer the money you got for the VAT in this separate bank account, and you’ll use them to pay your VAT related taxes when times come.
2. Take track of your income
Freelancers have the duty to taking care and tracking their income to make sure they know how much they are earning, how much taxes they may pay based on the income, how many things they can deduct.
Also, if you take track of your income, you know how flexible you can be in terms of accepting new clients, lowering your fees and keep 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 on a given period and plan accordingly.
Some of the most used invoicing softwares for freelancers:
- 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.
Just as an example, if you’re self-employed working from your home, in certain countries you can deduct your rent and your utilities’ bills: so you need to keep track of how much you’re spending every month to calculate what’s 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 you a limit so to make sure 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 of the points above leads us to the following one: set up an emergency fund, that 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 and 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 on a given month and making zero the month after. Having a plan and always stay vigilant, it’s the only way to be safe without necessarily tightening the belt.
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 to have 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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