You may be new to freelancing or are a seasoned freelancer. Either way, keeping track of your finances is one of the most important things you must do.
Without having a plan in place, it’s easy to overspend and not put enough into savings. Not only that, but you’ll be less likely to start saving for retirement!
Here are some personal finance tips we recommend following. These tips will guide you so you can become financially savvy in all that you do!
1. Set Up a Separate Business Account
One of the first steps a freelancer should take is to set up a personal and business bank account. It’s a lot easier to manage your money when you have a separate business account. Things get messy when your personal and business expenses intertwine. In a business account, you should have the following:
- Your salary
- Business expenses
- Tax money
- Emergency fund
You can also have an emergency fund be a part of your business account if you choose. When taxes roll around, you’ll know exactly what you can expense. Although, it’s best to hold onto your receipts as well.
2. Create a Budget
Rent and your bills are the most important to pay, so add them up. With the leftover money, you can create a budget for other things like we mentioned.
There’s more than making sure you have enough money to pay your rent and bills. Don’t forget to include setting aside a retirement fund or start investing. And, of course, be sure to take out enough for taxes each month!
Coming up with a budget will help you understand how much money you need to make as a freelancer to stay afloat. If you find you’re going over budget, it may be time to pick up another client or cut back on extra expenditures.
3. Don’t Forget About Your Credit
Do you want to know one of the most critical things freelancers often neglect? They forget to keep track of their credit score! If you’re putting a lot on your credit cards without paying them off each month, that can affect your credit score. Here are a few other factors that can affect your credit:
- How long you’ve had credit accounts
- Whether you pay your credit cards on time
- How many credit cards you have
- How many inquiries you’ve had (such as when you rent an apartment or open a new credit card)
If you end up buying a house in the future or want a small business loan, you need a high credit score. That’s why it’s critical not to make poor decisions. Otherwise, you’ll have a difficult time getting a mortgage or other loans. And you don’t want that to happen!
So make positive decisions regarding your credit; otherwise, it could come back and bite you later.
4. Keep a Backup of All of Your Data
Your time is precious as a freelancer, which is why you must have a working computer and a backup computer. Besides having the right technology readily available, you should backup your data frequently.
If you don’t, and your computer crashes, you’ll be in big trouble. The worst-case scenario is losing a client, and you don’t want that to happen.
Another reason to back up your data is if you lose files while working on an existing project. Sometimes a computer or website malfunctions, so be prepared for that!
Losing a client could be devastating for you financially. That’s why you must stay on top of keeping track of your files and other data. It’s even smart to have a backup for your backup, even though that sounds extreme!
5. Think About Getting Disability Insurance
Have you thought about getting disability insurance? Sometimes things happen that are out of your control, such as getting into an accident. If you were to get into an accident, disability insurance would cover you until you got better. The same would go for illness if you were to get very sick.
If you do decide to get disability insurance, there’s something vital to keep in mind. You must sign up for a policy that includes an own-occupation rider.
That way, your insurance company can’t refuse to pay you any benefits. Sometimes that can happen if they deem you’re still able to work outside your regular occupation.
There’s a lot that goes into being a freelancer, and your finances are one of them. Even if it seems like there’s a lot to keep track of, it’ll help you in the long run if you stay on top of them now. Focus on keeping track of your income and sticking to a budget. And, as we also mentioned, focus on your credit, back things up, and consider disability insurance. Work hard to keep your finances in order, and you’ll no doubt succeed in all that you do!