Freelancers need to learn to be clever with their money. The financial situation for freelancers is something that is constantly changing and can easily become really volatile if you don’t focus on it properly.
1. Open A Separate Bank Account
First, don’t start using your own bank account for your freelancing payments. It is crucial to open up a separate bank account to guarantee you are saving your own nerves during the tax season.
Legally you don’t need to have it but it really makes your life a lot easier. It is also much easier to budget properly and it can guarantee you stay on top of what is your business spending and what is your private spending.
2. Create An Emergency Fund
If you don’t already have a personal emergency fund, you really need to get one when you start freelancing. As a freelancer your income isn’t as safe and secure as in permanent employment and thus you need to be prepared for the rainy days.
The internet is full of emergency fund guides and you really have no reason to avoid getting one. For example, look at this step-by-step guide at Lifehacker for a good way to get started.
3. Create A Separate Account For Taxes
You are responsible for paying your taxes as a freelancer. You, in most instances, also pay these once a year and this can make your money management a little bit tricky. It really helps to start budgeting for your tax throughout the year and to set the appropriate amount of money aside to a separate account.
This guarantees you don’t end up using a little bit more money than you could afford, for instance.
4. Calculate A Monthly Income
In many instances your income isn’t really regular and you don’t necessarily have the luxury of a set monthly income. But you most likely have a general idea of how much you make per year and can use this amount to calculate a minimum monthly income.
This guarantees that even if you are making more money on some months, on average you are budgeting for a regular amount. In the end this is a really safe route to take.
And remember it is much better to prepare for the worst with your money rather than just hope for the best.
5. Get Milestone Payments
You might also be working on projects that can take relatively long-time to finish. In these instances it is a good idea to create a contract with milestone payments. This means that you either get a payment after you’ve worked a certain amount of hours on the project or once you have finished a specific section of the project, for instance.
There are many companies out there willing the pay in this manner. It is always worth asking at least, because getting a regular payment will provide you with much more financial stability. And a good money management will ensure you are more productive with your work as well.
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Anna Haynes is passionate about helping freelancers understand money management. She is also really keen on investing and wants to find best routes to getting private equity deals. She also loves to go to opera with her husband.