For many, building a stable freelance career has become an ideal, as it offers ultimate flexibility and captures the essence of work-life balance. If you’re fortunate enough, it’s possible that you could be earning a six-figure income that will set you for life.
However, this doesn’t mean being complacent when you’ve reached the peak of your earning capacity. As you generate more money, you could end up spending irresponsibly, and since the gig economy is prone to uncertainties, you may not have saved enough to form a hedge when finding work gets increasingly difficult.
Financial Management Tips for Freelancers
As a freelancer, you have the freedom to enjoy your earnings on your own terms, but this shouldn’t result in overlooking the value of financial management. Especially if you’re planning to work full-time in the gig economy, it matters to know how you can allow your income to grow and secure your future needs.
It might seem time-consuming and tedious to deal with, but being wise with what you earn will help you maintain your gains and ensure stability despite what’s happening in the economy. Here are a few tips to keep in mind:
Take a Good Look at Your Lifestyle
No financial plan will ever prosper without knowing your capacity to spend and save. Most freelancers who have begun to earn their first six-figure payout in a month would think that they could do anything they want. Without proper tracking, it might take less than a month to burn through this much money. If you want to be wise with your finances, assess your spending horizon and know how much you’re willing to set aside as savings and investments.
It’s also important to list all your liabilities, such as student debt and average monthly credit card bills. The process can be daunting, but there are personal expense tracking apps you can check out that will help you get the full picture of your financial habits, allowing you to adjust your lifestyle in case expenses far exceed your savings.
Stay Compliant and Legitimate
Since you’re operating as a freelancer or independent contractor, you are subject to unique tax and bookkeeping rules. Many in the industry ignore this obligation only to face costly penalties once they’ve been caught. Not only are they fined, but their reputations become tarnished, and they may not qualify for most financing options, including personal loans and mortgages. Never let this happen to you.
Make sure to document your expenses accurately, down to the last cent. It’s also wise to follow your schedule for paying your tax dues and filing personal income tax returns. If you miss a deadline, be sure to file a personal tax extension to avoid penalties. You might also be required to issue receipts and report deductible business expenses. Get a tax expert along with an accounting platform to help you manage compliance.
Build a Retirement Fund
Since you’re not employed at a company, you may have to contribute a higher amount in place of an employer’s share. Along with this disadvantage, there’s also a good chance of not paying consistently, especially if your monthly earnings aren’t fixed. If you choose to retire as a freelancer, you may not recover the same benefits as you would if you worked under an employer.
For this, you just have to choose a retirement plan that best caters to your goals and the nature of your work. You can opt for a Simplified Employee Pension IRA that allows you to contribute up to 25% of your earnings, or a Roth IRA, which limits annual contributions to $7,000 per year but allows you to withdraw your savings tax-free.
Be Intentional with Your Rates
Part of sound financial management is knowing how much you’re selling your services. You might think you have the flexibility to charge more, but keep in mind that you’re not just competing locally. You’re also competing in a job market saturated by virtual assistants based in other countries. Setting too high a rate will only complicate your search for your next big job.
Conversely, offering yourself at the lowest possible market price will only undermine your credentials and expertise. You may be attracting clients, but you could end up doing professional-level work at rates that could hardly compensate for your level of skill and experience. Research averages in your line of work, so you can compete better and further boost your earning capacity.
Conclusion
Starting a career as a freelancer doesn’t always guarantee a lack of hardship. You just have to make sure all your books are correct, and your bank accounts are filled enough so you can remain stable all throughout.
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