Whether you’re just starting out as a freelancer or have been self-employed for years, it pays to stay on top of your finances. By making an effort to track your income accurately, put aside money for tax, and plan for your future, you’ll avoid many problems later down the line.
If you’re not confident about managing your finances, don’t worry — these simple tips will help even the most mathematically-challenged freelancer stay organized.
1. Use Bookkeeping Software to Track Your Income
What’s your current method of tracking your income? Are you scribbling notes onto a large pad of paper? Trying to keep on top of a huge, messy spreadsheet? Or desperately trawling through your accounts at the end of each financial year?
None of these methods are ideal, and it’s all too easy to make mistakes that could cost you in the long run. Signing up for online bookkeeping software is a smart way to log your income in real-time. You’ll be able to easily log income and expenses without any fancy spreadsheet knowledge, adding details including date, customer name, payment method, and more.
Technology is changing the way bookkeeping works — and helping freelancers save money.
2. Put Aside Enough Money to Pay Tax
Bookkeeping software will help you estimate how much tax you’ll pay, but you need to remember to save enough to actually pay your bill.
Putting aside a small amount each month won’t make a huge difference to your lifestyle, but it will save you a ton of stress later on. Even if you’re not earning enough to pay much tax yet, it pays to build good habits to prepare for the future.
It’s a good idea to put away 25-30% of your income each month for taxes. This should be enough to cover your payments, and if you pay too much you’ll receive a nice rebate at the end of the year.
3. Consider a Credit Card for Business Expenses
How long do you spend sorting through receipts, trying to figure out what was a business expense and what wasn’t? If you often travel, eat out, rent rooms, or buy equipment as part of your business, it’s smart to consider a business credit card.
You’ll be able to keep all of your business spending in one place, making it much easier to file your accounts. There’s no risk of mixing up business and pleasure spending, which can be an issue when everything comes out of one account.
4. Start a Self-Employed Retirement Account
Being a freelancer means you don’t have the luxury of a workplace pension. If you don’t start saving for your future, you could have some serious regrets in a few decades’ time.
No matter how old you are, it pays to start putting a percentage of your income into a savings account, 401k, IRA, or Roth IRA now. If this all sounds foreign to you, consider speaking to an accountant to get advice and put together a personalized retirement plan. Don’t want to pay for that kind of advice yet? At least put some money into a regular savings account, ready to transfer to a pension fund later on.
Managing your finances isn’t the most exciting part of being a freelancer, but it’s essential if you want to be successful. Get things on track by following the simple tips above.