As a freelancer, you need multiple skills. The skills required to render your service is not just enough to make you successful. However, for most freelancers, apart from the skills required to render their service, others are usually overlooked. One of them is how to manage your personal finances as a freelancer. Working for yourself has huge advantages, but it also means irregular income, complicated budgeting, taking care of accounting, expenses, taxes, and retirement planning yourself. You’ll need to plan carefully and stay aware of your personal finances at all times if you want to keep up.
Here are some personal finance tip that every freelancer should know
Create a budget
As a freelancer, budgeting will have to become a regular part of your life. That’s because unpredictable cash flow is one of the basic realities of freelancing. You’re not going to be getting the same inflow regularly, so, you’ll need to learn to even out the highs and the lows. A budget will help you do that. At the core, budgeting is simply a matter of making sure your expenses fit within your income. That’s a simple concept but it’s not always easy to pull off. Learning the basics of budgeting is one of the first steps towards secure personal finance for freelancers.
Separate business and personal expenses
While there are certainly exceptions, how you handle your finances is not one of one them. As a freelancer, it’s best to keep your personal and professional finances separate.
Your business account is where you can deposit your payments. Based on your budget, you can then set a salary and transfer your “paycheck” into your personal account. Pay business expenses from your business account and your household bills from your personal account. Properly structuring your personal and professional finances can make a big difference over time.
Build your own retirement plan
As a freelancer, you will have no employer to plan your retirement for you. The fact is, you’ll retire someday, so, you will have to prepare for it. The time to begin preparing is now. Retirement plan contributions, like health insurance premiums, will represent another draw on your cash flow.
Save for emergencies
Just like you save for retirement, freelance workers should get in the habit of setting aside a percentage of each payment to build an emergency fund. Your emergency savings fund is where you stash money for unexpected events. These may include medical bills, car repairs, or broken appliances. When these problems arise, an emergency fund helps you avoid racking up debts. They can also help keep your business afloat.
Here is a pro tip. Once you’ve accumulated a robust emergency fund, make sure it only gets used for emergencies. Avoid dipping into it for unnecessary wants.
Diversify your income sources
The more income sources you have, the more stable your cash flow will be. One of the most fundamental differences between an employee and a freelancer is that the employee usually relies on a single source of predictable income, while a freelancer relies on many. Diversifying your income sources will help to avoid the ups and downs that create the need to tap your emergency fund when income dips. You’ll know your business is a success when the money coming into your account exceeds the money going out on a regular basis.
So, finding new sources of income is a core element of self-employment. You’ll need to be searching for new sources on a regular basis.
In conclusion, to be a successful freelancer, it’s essential to keep a close eye on your personal finance decisions and habits. Dedicate some of your extra time spent at home to review your current income, expenses, savings, and insurance. Also, e honest with yourself about what you are doing well and what you could be doing better. Practice, learn and improve.
My name is Chigozie Japhet. I am a content writer, and a brand strategist. I like writing, reading, researching and watching football, especially my team, Man United. i believe in working hard, and also in relaxation as all work without play, makes Chigozie a dull boy.
