How to Manage Finances as a Freelancer (10 Amazing Tips)

Freelancing comes with its perks, a flexible work schedule, and no commute and working from anywhere you want. But it comes with challenges like unstable income, irregular payment schedules, no medical insurance, or paid sick days or vacation. That means you have to manage your money better.

As a full-time employee, you get paid on a certain day, whether monthly or weekly. But that’s a far-fetched dream for freelancers. Furthermore, as a freelancer, you may not have an accountant to help you with taxes, and being your own boss means tracking all business and personal expenses.

So can you manage money as a freelancer? This article shares 10 mind-blowing hacks on how to manage finances as a freelancer. We will also share tips to manage your expenses and increase your earning potential. Let’s dive in.

10 Easy Ways to Manage Finances as a Freelancer

1. Make a monthly budget and stick to it

One of the best ways to manage finances as a freelancer is to create a budget and stick to it. A budget helps you estimate your monthly expenses, allocate your money to the right priorities, and avoid overspending on unnecessary things.

Creating a budget as a freelancer may seem challenging because you don’t have a specific pay date and a net income to work with. The best way to go around that is to write a list of all your monthly expenses like rent, food, utility bills, loan repayment, and other personal expenses.

This total amount will help you know what you need to make in a month to pay all your essential bills. You can also add an entertainment budget for eating out or weekend trips and the amount you wish to save every month.

Similarly, write the expenses needed to run the business like paying for software or tools like Canva, and Grammarly or invoicing software like QuickBooks. This will give you a clear picture of whether you are making profits or not. It also prevents you from spending your income on personal projects and neglecting tools that will help grow the business.

Use an Excel file, a spreadsheet, or an app to keep track of how you spend your money to help you pay off debts, pay your bills on time, and have a clear budget that you can follow.

2. Have a separate business account

Treat your freelancing as a business to manage finances as a freelancer. Having a separate personal and business account helps you keep a clear record of your business income. Furthermore, asking clients to pay to your business account looks more professional than using a personal account.

Your income should come through the business account then you channel it to your personal account to pay for bills and utilities and help you track your expenses.

Having separate accounts also makes it easy to file taxes because you can use them to deduct business expenses like paying for internet, invoicing software, advertising, or courses. I

3. Track your taxes and pay on time

Working as a freelancer means you have to handle your taxes to prevent penalties and interest. It is advisable to pay taxes quarterly to make it easier for you at the end of the year. Research the applicable taxes whether income tax or self-employed tax to avoid any surprises in the future.

You can hire an accountant to handle your taxes or use tools like Quickbooks or Freshbooks to track your taxes and set aside the amount of taxes to pay quarterly or annually to avoid penalties.

4. Pay yourself first

Another way to make it easy to grow your freelance business is to pay yourself a fixed salary. This will help you know the money you can expect from your business instead of waiting around for any little pay.

Furthermore, your freelance income is not all yours to spend. You need to leave some to grow your business and also pay taxes.

Figure out what you can live with and pay yourself every month and transfer that specific amount to your personal account every month and keep the rest for a rainy day. Paying yourself a salary will also help you money your money better and even invest some of it or save for retirement.

5. Build an emergency fund

An emergency fund will cushion you from unexpected occurrences like medical expenses or when a client halts a project midway. You need to have at least three to six months of savings with your monthly expenses for those dry months to avoid going into debt.

If you didn’t have already you can start contributing to a savings account today. Calculate the amount you need for three to six-month expenses. Then start contributing to it every time you get paid. Take advantage of months that you exceed your normal income to channel that into your emergency fund.

6. Invest

Once you have an emergency fund of six months or more start channeling the extra cash to your investment portfolio.

It is not enough to just save money but investing helps to grow the money with compound interest and increase it. You can invest in bonds or real estate or something that will grow your cash.

7. Review your financial goals regularly

Working as a freelancer has many perks like freedom, unlimited income, and autonomy. However, you need to be careful so that it doesn’t turn out like a regular 9-5 job where you trade your time for money. Also remember that as a freelancer you only get paid when you work, so you need to be smart.

Review your income, and monthly expenses and find opportunities to earn more income. A goal you are working towards like paying for a house or buying a car, will motivate you to keep going.

8. Build passive income

Building passive income is another way to manage finances as a freelancer. Whatever you are doing for your clients you need to start doing for yourself. If you are writing blog posts for their blogs you also need to do the same for yourself even if it’s on a small scale.

Start building your passive income by creating and selling digital products such as eBooks, and courses or starting a blog and YouTube channel. Passive income streams will free your time and help you earn more money as you sleep to cater to other financial needs.

9. Invest in yourself

As you strive to increase your income, invest in yourself. Enroll in courses and programs that will improve your skills help you charge higher fees and attract higher-paying clients.

Furthermore, when you improve your skills you’ll be able to do the same task in a short time. And since you are paid per hour that means your hourly rate will increase and you can increase your income.

10. Save for retirement

As a freelancer, you don’t have an employer to give you a pension at the end of your service tenure. Therefore having a retirement plan is one of the best ways to manage finances as a freelancer.

A retirement fund helps to cushion you for the future when you may not be able to work. Get yourself a personal retirement plan and start saving towards it every month.

To remain disciplined set an automated transfer from your checking account to your retirement account to save money every month without fail.  You can boost your account when you get extra payments or money earned from your passive income projects.

FAQs

• How do freelancers handle money?

The best way to manage money as a freelancer is to have a separate personal and business account. It makes it easy to track your personal and business expenses and have clear records for easy tax returns.

• How do you manage money when self-employed?

The best way to make your money when self-employed is to have a clear budget and stick to it. It is also good to save in an emergency fund and plan for retirement.

• How do I manage myself as a freelancer?

The best way to manage yourself as a freelancer is to have a clear working schedule and have time to log in and out of work. Also, have a dedicated working space and limit distractions.

• How do I set a budget as a freelancer?

To set a budget as a freelancer you need to write down all your personal and business expenses. Then, determine how much you need to earn to cover all the expenses. Save the remaining amount in an emergency fund to cushion you from unpredictable emergencies in the future.

• How much should I save as a freelancer?

How much you save as a freelancer depends on your income, your financial goals, and expenses. It is advisable to set aside at least 20 to 30 percent of your income for saving and investment.

Final Thoughts

Learning how to manage finances as a freelancer will help you track your expenses and save and invest for a financially secure future. If you have not started, start today to build your emergency fund and invest in a retirement package to help you secure your future.

Also, consider getting high-demand skills to help you get higher-paying jobs to increase your income. We hope that these tips will help you manage your money better as a freelancer.  Which money management tips for freelancers do you love? Let us know in the comments below.

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