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February 9, 2024 - 7 minutes

Managing Your Finances as a Freelancer

Navigating your own finances doesn’t have to be impossible. 

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The life of a freelancer is quite incredible–you get to set your own hours, fees, and choose the work you do. In addition, you can work from practically anywhere and only in roles that truly meet your goals. Sounds like a win-win, right? For many, freelancing is a nice break from strict office rules or long hours, but it’s not all amazing all the time; finding work, balancing vacations and illness without paid days off, and managing your own finances can pose quite the struggle for many. 

That’s why we’ve written this article: to help explain what managing your own finances as a freelancer will look like, possible challenges that may arise, and our best tips and tricks for staying on top of it all–while living your best freelancer life. Let’s dive right in! 

The Financials of Being a Freelancer 

One of the most essential and crucial parts of freelancing is understanding that you’re your own boss, your own HR manager, and your own accountant; you’re running a small business and must take on every aspect of that, including the financials. 

For many, this can be the most challenging part of moving into the freelance world. You might be thrilled about focusing uniquely on the projects that most interest you and your skills, but ensuring you’re up to date on taxes, charging market rates, and saving up for unforeseen challenges or lulls in your work. 

Let’s discuss some of the main challenges that freelancers face when it comes to financials: 

  • Irregular income: in the vast majority of jobs outside of freelance ones, you receive a set pay monthly or hourly, or maybe even a commission based rate, but you know roughly how much you’ll make each month. As a freelancer, however, you’ll find that your income will vary significantly from month to month, leading to a bit of unease during slow stretches. 

  • No days off: as a freelancer, you get paid for the work that you do; vacation, sick, leave, and bereavement days don’t exist when you’re working for individual clients. This means that you can’t count on continued income when you’re sick or government support in case of long absences, such as paternal leave or a long-lasting illness. 

  • Irregular workload: if you work for a company, you’re probably used to having similar tasks that you complete weekly or monthly and no matter what, you have work to do. On the other hand, freelancers are responsible for finding their own clients and work and this means there can be very busy months and others where there’s little to do. 

  • Managing their own taxes: taxes will depend on where you live/where you’re from, but it can pose quite the challenge to navigate the bureaucracy of tax reporting and setting aside a portion of your income every month, knowing you’ll be taxed on it later on. 

With these challenges understood, let’s move into the four main responsibilities that freelancers have when it comes to being their own accountant: 

  • Setting the right rates and understanding their taxes: you determine your own income, yes, but it’s important to research how much you’ll be owing in taxes so that you’re able to understand exactly how much you need to live off of and then ensure even after taxes, you’re still reaching that number. There are usually a few different kinds of taxes, such as social security, income, or contributions to healthcare, that you need to keep in mind. 

  • Investing for their future: the market can change in the blink of an eye and you want to ensure your skills are in-demand, in addition to having the latest tools to work best in your field. For example, if you’re a web developer, taking the time to familiarize yourself with new programming languages and add more skills to your resume will expand your clientele. 

  • Staying on top of their accounts: paying taxes isn’t the only concern here; as you’re working for yourself, you’ll need to master tracking your income, outstanding invoices, and charging rush/late fees for work that’s outside of your normal rates. In addition, you can save a lot of money if you declare your freelancing expenses, so keeping track of those is key. 

  • Saving for unforeseen events: as we mentioned above, being a freelancer means you’ll have lulls in your work and be required to have savings to support you during this time; make sure you plan for vacations and any planned leaves to make sure you’re covered and financially stable. 

Keys to Managing Finances as a Freelancer 

Now that you understand some of the overlooked challenges of being a freelancer and what to keep in mind when making the move to the freelancer life, let’s let you in on some of the best kept secrets for managing your freelance finances.

Separate your personal and business expenses 

Especially if you choose to work from home, creating boundaries between your business and personal lives is key, particularly from a financial standpoint. Open a separate bank account exclusively for your freelancing career; in addition to helping keep your earnings clear, this will help you when it comes time to declare taxes and expenses, facilitating the tax reporting process. 

On a similar note, make sure you have strict boundaries when it comes to the hours you work and projects you’re willing to take on; as you start off, you might be tempted to take any project or job to just get your foot in your door, but make sure you only take work you’re qualified for and are properly compensated. Remember–taking low rates lowers the market rate for all other professionals in the field. 

Use an accounting software to help you 

Keeping track of your outstanding invoices and bills can be quite the challenge, so it’s crucial to be organized and keep everything in one place. Depending on the one you choose, you can enjoy the following advantages: 

  • Invoice creation: don’t waste time creating complicated or unprofessional invoices when you can have a software that does it for you! You can also save all your information and have it automatically filled out, helping save you time. 

  • Expense tracking: put all your expenses in one place, from supplies to energy bills, so that you don’t miss any possible deductions when you file your taxes. 

  • Report creation: lots of freelance accounting softwares produce reports so that you’re able to have a month-to-month or year-to-year breakdown of your expenses, earnings, savings, and other important factors to help you evaluate your progress over time. 

  • Automation: nothing’s better than a computer doing some of your work for you, right? And with automation tools, you’ll save time and energy. 

Track your business expenses 

As we mentioned earlier, being a freelancer means you’re responsible for all aspects of your job, including materials and good news: these can be used as tax write-offs if properly tracked. To help keep track of your expenses and have them prepared for when you need to include them on your tax returns, make sure you have a clear understanding of what business expenses are–and aren’t:

  • Basic supplies: are you working from home? Your WiFi and electricity bills may be expensable to help offset some tax costs.

  • Re/upskilling costs: in some cases, you might be able to expense continuing education courses or memberships that help you advance your knowledge and skill set.  

  • Travel: depending on your area of speciality, you may have to travel for client meetings or to collect materials needed; even if you’re simply driving to the town over, this gas is a business cost that can be expensed.

Set aside time daily or weekly for financial tracking 

It can be easy to leave your financial planning or regrouping for the end of the month, but you might find that it’s hard to remember exactly what you did or the expenses after so much time. Setting time aside either daily or weekly to track your hours, income, and expenses can make the tax process much easier–in addition to helping you have an accurate and updated outlook on your financial status throughout the entire month, instead of just at the end. 

It’s also a good idea to hang on to all receipts, invoices, or bills in a specific folder so that they’re in easy reach in case you need to refer back to them later on. 

Plan for planned tax payments and unforeseen circumstances 

No matter how well you plan, there will be unforeseen circumstances that you’ll have to take on and you need to make sure you’re saving for the future and have the resources to handle any challenges that arise. For example, you may be unable to work for a period of time because you’re sick or simply have a slow business month; make sure you have the resources necessary to cover your needs and contribute to your savings during this time. 

In addition, you should research your predicted tax payments and set that money aside from day one so that there are no issues later on if you can’t come up with the funds. 

Freelancing might seem like a challenge, but it’s an incredible way to work on your own terms and set your own schedule; in the tech industry specifically, it’s becoming increasingly popular. So if you’re ready to take on the challenge, consider taking the first step towards landing your first tech role with one of our bootcamps. 

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