There are many benefits when you are your own boss. You can work when you want to, with whom you want to. You have the luxury of choosing your own clients, and can even work in your pajamas! In fact, working from the beach has always been the dream for freelancers!
However, at the end of the day, things are not always so good. For freelancers, life is not a party because there is a price to be paid for becoming one. First of all, income flow is uneven, and unless you pay close attention to it, you can fall into debt. Secondly, you miss out on employer benefits. Thirdly, you are the only one, on top of managing your business, who needs to manage your personal finances.
In this article, we at mymoneykarma shall help you to get your financial home in order, and will give you tips to make money by freelancing!
Track your income
The very first thing to do is to know how much you are making, or what your income is. Do you know what your income was last month or last week? Was it more or less than the previous period a year ago?
One financial expert says that freelancers have more predictable income flows than those who are not into freelancing. Most of them do not know or track their income, and feel overwhelmed when their financial situation becomes overwhelming, unmanageable and unpredictable.
On the other hand, if you do have a historic view of your income, it gets easier to prepare for the lean times of the year, especially if you have seasonal projects and repeat clients. Freelancing world can be irregular, but historic insights of your personal finance can give you some financial stability. Want to track your freelance income and expenses? Just use a separate bank account, a simple spreadsheet or a free app.
Plan to meet your tax obligations
You might be freelancing, but that doesn’t mean you can sneak away from paying your taxes. And that is one of the things which make this line or work tough by itself. It can get stressful in a hurry.
If you work in a corporate office, employers shield you from some taxes. But when you freelance, there is no such lenient shield. You’ll have to pay all your taxes yourself. But it is not so hard as it looks. Here’s what you got to do. Make an educated guess on your yearly earnings, and then make estimated quarterly payments to help you stay on track on taxes. If you can, use the previous year’s tax return as a baseline to work from.
There are, of course, things that you can deduct. These include expenses for professional development, work-related car use, and business expenses. And you can also deduct health insurance premiums, if you meet some requirements. To make sure that your tax season is smooth, learn all about the different tax rules for freelancers.
Create a budget
When you are a freelancer, budgeting may seem impossible. However, it does not have to be that way. You can use the 50/30/20 budgeting methods. In this method, 50% of your monthly income goes towards meeting your necessities post-income tax deduction, 30% towards meeting your needs, and 20% towards your savings and repaying debt.
Here are other smart things you can do:
Stash away Rs. 50000 for emergencies.
Save for retirement
Pay off your bad debt first
Don’t stop saving for emergencies
Pay off your other debts
Did you know that as much as 20% of freelancers are uninsured? And this is from a 2016 data. Today, with more and more freelancers joining the market, you can be rest assured that this percentage has increased. If you don’t have insurance coverage, you’ll have problems facing financial hardships in case of medical emergencies, health problems, and the like.
Here are your insurance options:
Set competitive rates
It is always a good idea to periodically reevaluate whether or not you are compensated adequately for your efforts. According to what you find, you may need to adjust or change the price of your services. In one popular freelancing site, around half of the freelancers said they want to raise their rates the past year, and more than half opined that they planned to raise their rates the next year.
In this sense, freelancers are in a much better position. They are in control of their rates, and thus over how much they can make. This is a freedom most working people don’t have. So if you, as a freelancer, have a lot of expenses, think hard about increasing your rates.
When you earn more money, you remove financial pressure from yourself and can create a budget.
How can you be sure of which rate to have?
Talk to other freelancers. Go to sites like Glassdoor.com and see the average rate for your industry and for one of your skills and experience. When you find the average salary, break that down into hourly rate.
If you are a freelancer, managing your money can take a whole lot more of your time and energy. However, you’ll get a lot of benefits if you stay vigilant and organized.