Freelance working is not a routine. Everything varies; hours can stretch beyond ten. Rates vary from client to client and project to project. Sometimes, you won’t get paid immediately when the work is done. In short, not everything is regular, and you have to wait before your money matures. For such reasons, you need financial tips for you to survive with your freelancing work.
As far as freelancing is an independent job, with no one to monitor everything you do, sometimes it becomes hard to control your income and expenses.
In this regard, financial experts, such as A1 Credit, offer saving tips that can prove helpful to freelancers. But how can you effectively manage your finances? Well, here are some of the financial tips you can use to manage your money.
Budget Your Money First
The question is, do you have a spending plan in your home? Financial experts suggest that whether you use a spreadsheet, app, or a notebook and a pen, you have to calculate how much you spend on your expenses. As a freelancer, you may not be keen to realize how much you spend on unnecessary categories like eating out, going to movies, and hobbies. Therefore, the first thing you need to calculate your money is a budget. It is recommended you go back through your bank and credit card statements and see how much you have spent for the past three months. You need to do some credit management to keep a check on your expenses and how you manage them.By calculating your average expenditure on each category every month, you can see where to cut back if necessary. You might also be surprised to see how you have been spending your money on short-term joy.
Remember, freelancers earn an irregular income. While you strive to maintain a steady cash flow, sometimes how and when you get paid can be totally out of your control. Some months may come with a bucket full of cash, while others only carry a trickle. Therefore, apart from having a business budget where you estimate how much your clients will pay you, you need to draft a realistic personal budget and follow it every day. A realistic budget will ensure that you have a steady income to survive and meet other financial obligations.
Calculate Your Income in Hours
Most freelancers forget that their income is calculated in hours. For example, how long do you take to complete one project? How many projects do you accomplish in a day? By knowing how many successful projects you can accomplish in a day, you will calculate your money in hours rather than days, weeks, or months. Freelancing pros would tell you that an occasional splurge is fine once in a while, as long as it comes with a valid reason. But if you reward yourself with unnecessary purchases and trips every time you see money in your account, you are probably neglecting to make money. Therefore, before spending any money from your account, ask yourself how long it took you to earn it. This will make you rethink before spending your money on anything that brings short-term joy.
Think About Your Health Insurance
Don’t make the blunder forget about your health insurance just because you are a freelancer and not a full-time worker. An emergency can occur anytime, like serious illness or injury. If you have an individual disability policy, it will replace a percentage of what you would earn if you were employed. However, many freelancers cannot pay for their high health insurance deductibles even when they are in full-time employment. You can imagine what will happen when you cannot pay for an expensive health issue that is only partially covered by your health insurance when you are on a part-time job.
The good news is that health insurance highlights the importance of critical illness insurance, especially for part-time and independent workers like freelancers. This means critical illness insurance is a one-time payment for an expensive illness like heart attack, stroke, and cancer. As a freelancer, it may be challenging to pay for these illnesses; thus, you should think about taking your health insurance. Critical illness insurance can also pay for costs not included in health insurance, such as:
- Lost income from missed work.
- Experimental medical treatments.
- Deductibles and co-pays.
- Everyday living expenses.
Save For Retirement
It sounds crazy to save for retirement when you are doing what you love, but the truth is you are not going to do it forever. Indeed, you are not working with a traditional company, and you are not afraid of reaching your retirement age. However, there is no reason for you to think you will work forever without a retirement plan.
Fortunately, there are many available options you can pick. For instance, independent contractors offer similar options as small business owners such as Solo 410(k), SEP-IRA (Simplified Employee Pension Individual Retirement Account), regular IRA, and Roth IRA. Independent contractors can also make adjustments to these retirement plans to decrease their tax liability and increase long-term growth.
While the need for you to take a retirement plan cannot be emphasized enough, you need to be proactive about your retirement savings. Most independent workers can easily fall behind and fail to catch up with this financial tip. Therefore, freelancers can sign up for an Individual Retirement Account (IRA) in which they can save up to $6,000 annually. You can open the account through your bank or other financial company. Saving for your retirement in a tax-free IRA account reduces your taxable income too.
Open an Emergency Fund
You never know when you will get sick or have an emergency that requires immediate financial aid. This means as a freelancer, you should make a habit of setting aside a certain amount of your payment for an emergency fund. Emergency funds will help you in times of unexpected events. For example, you may need to pay for minor medical bills, repair your car, buy new working appliances, or pay for household bills. This type of fund also helps you avoid using your credit cards and keep your business active. However, it is vital to note that emergency funds should not replace an individual disability or critical illness insurance. You can only use your emergency fund in the event of disability as you wait for your disability insurance to kick in. You can also use emergency funds to supplement the benefits you receive from your critical illness insurance.
Freelancing comes with its benefits, including a steady flow of cash in some months or an influx from your clients. In such cases, you need to keep an eye on your personal financial decisions and spending habits. For you to save some money from your independent work, you have to spend some time to review your income, expenses, savings, insurance. Try to be honest with yourself about everything you do with your money and what you can do better. By doing so, you are guaranteed to enjoy your money with no stress.