Freelancing may seem like a great way to be your own boss and decide your own hours, but it comes with the need for financial responsibility. Without properly managing your finances, freelancing will become a quick way to go into debt. No need to fret though! There are a few quick and easy steps you can take to ensure that you thrive as a freelancer while also meeting the goals you set for yourself and your business needs.
1. Balancing income against expenses
One of the most important things you need to do is track your income and expenses at the end of every month. Track your recurring expenses like rent and utilities as well as your discretionary expenses like eating out. This should be balanced against your income so you can make sure you’re not spending more than you bring in. You should also create quarterly and yearly reports for yourself, which will allow you to see the success of your business over long periods of time as well as know what your income looks like over the years.
2. Keep all your finances organized and in one place
Being organized is so important when it comes to any aspect of a business, but it’s especially important for a freelancer since you are the only person accountable for keeping track of everything business-related. A great place to start is with a mobile accounting app, which will keep all of your receipts and invoices in one place so you don’t lose track. Being organized will make everything less time consuming, like balancing your income and expenses every month as well as sending professional-looking invoices to clients. As a freelancer, you definitely do not want to be spending all of your time budgeting!
3. Track consistent income
When it comes to managing your income, you should always track how much of your income is regular and consistent each month. Since freelancing can be an inconsistent job and the next paycheck may be uncertain, it’s important to know how much of your income you can rely on every month. You should budget based on your reliable income and use the rest towards savings or debt, in order to avoid over-budgeting based on an unrealistic figure for your income.
4. Using the 50/20/30 Method
A great method to keep track of your finances is by using the 50/20/30 guideline. Take your income after taxes and then divide up your expenses between necessities, savings or debt, and discretionary spending. From there you give no more than 50% of your income to the necessary expenses, no less than 20% towards savings or debt, and no more than 30% towards discretionary spending. This doesn’t have to be an exact science and you can adjust the numbers based on your lifestyle, but it’s a good rule of thumb that will help you control your budget and focus on saving as well.
5. Set financial goals
You should always have an income you want to reach in the future as well as a dream budget you’re working towards. Planning for the long term when it comes to finances is important because it keeps you on track with your spending and budgeting. By looking at your future goals, you can have a better understanding of what you should be charging for your freelance work in order to make those goals a reality. Having something to work towards is motivating and will help you thrive as you figure out the world of freelancing.
Freelancing can be difficult to jump into, partly because of the unreliability of income. Managing your finances, however, will become much easier if you follow the steps listed above. It’s vital that you don’t become overwhelmed or unorganized when keeping track of your business so that you can thrive doing what you love. That’s what freelancing is all about!