Freelancing is a great way to take back control of your work life. You can choose the projects you wish to work on and get fairly compensated for your work. You can choose your working hours and can probably create a better work-life balance. In most cases, you have the freedom to work from wherever you want, and it helps if you love traveling a lot.
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But all these good things come with their own set of problems too.
Freelancing also means that you do not have an assured income. While some months can go exceptionally well, there can be some dry seasons too. With this level of uncertainty, it is essential that you set in place some good financial practices that help you manage your money well and give you a healthy economic life.
Here are some common ideas to think about if you are a full-time freelancer. They might help you manage your finances better.
- Track Your Income - When you are freelancing, you will not get paid on the same day every month. You might even get paid in different accounts. Someone might give you cash, while someone might Paytm you the money. In such a scenario, it is essential to maintain your accounts well and keep track of your income in any particular month.
Also read: 15 Budgeting Hacks That Can Change Your Life - Keep a Safety Net: Since your income is not stable, you must always have a safety net of at least six months so that if you have a streak of months with low work availability, it does not stress you financially. While in such a scenario, you must immediately try to find a way to increase your income but having a safety net for six months will let you do that more peacefully. Also, make sure that you save this money in a liquid asset that assures capital safety and instant access to funds as and when required.
- Maintain a Separate Budget for Business Expenses: Freelancing is not very different from owning a business. You have to find new clients, and you have to pay for your equipment and resources. It might cost you some money to acquire a new client or to service the already acquired one. It is better to account for these expenses separately and not mix them up with your costs. Make a separate budget for your monthly freelance expenses and if you have the extra money in this budget in any given month, invest it to increase the safety net.
Also read: 5 Financial Tips for Freelancers - Separate Personal and Business Accounts: Maintain two different accounts for freelance transactions and private transactions. This will help you better track your transactions. Pay yourself a salary from your business account every month, and this will help you get a feel of a stable income even when you won't have one. You will be able to spend on your monthly budget from this separate personal account. As for your business account, make sure that you invest a decent part of your income, at least 20%, in a retirement fund. This step is crucial for wealth creation and future growth. Do this step whenever you are transferring your salary to your account. It will help you be more consistent and build you a decent corpus in the long run.
- Focus on Cash Flows - When you are overwhelmed with a lot of work, you might not get the time to work on your finances and manage them well. This is an excellent problem to have, and most businesses face it. However, do not delay on the planning part. Remember, income is also one of the reasons why you chose to do freelancing apart from pursuing your passion and being your boss. There might be instances where you are just getting paid for a project you finished months ago because you were too busy to follow up. Make a calendar and try to avoid such scenarios. For any business to be successful, regular cash flows are essential. If you delay invoicing and receiving payments, then you will lose out a lot on interest income. The chances of clients defaulting also increases if you wait for invoicing too much.
We hope these tips will help you manage your finances a little better. It is all about having better control over the money segment of your freelancing career. Most freelancers don't have a finance background and don't enjoy accounting too much, but it's okay. We are sure you will learn enough to make it work well with a little bit of reading and learning. Happy freelancing!
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