Working as a freelancer means being the boss – you get to decide when you work and with who. And, if your freelance career is a successful one, you will earn enough to sustain your lifestyle while allowing you to do what you want.
However, as with all kinds of work, while there are benefits, there are also some drawbacks. Working as a freelancer means you’re never really off the clock, you start from zero income every month, and you have to live with quite a high level of uncertainty around your income, even if you have retainer clients. You’re a small business owner. In short, freelancing is less stable than full-time, salaried employment.
With this in mind, here are our top tips for managing your wealth as a freelance professional:
1. Understand your finances
Just because you are good at what you do for a living does not mean you will be a naturally good financial or business manager. It is important to educate yourself about how your business works and the financial processes at play. Spend time with your accountant and financial adviser and make sure you understand the state of your business and how much you need to invoice in order to enjoy a positive cash flow and pay your dues.
2. Pay yourself first
This may seem strange, especially if you are just starting out in business, but it is an important milestone to put in place, both personally and professionally, even if it is a small salary at first. Your business needs to be able to support you or there’s really no point in working for yourself.
3. Budget for taxes
Taxes are a fact of life. Employed individuals tend to have their salaries taxed before they receive them so they don’t have to worry about making sure they put aside funds for tax payments. Freelancers do not have that safeguard. Be sure to budget for tax payments so that you aren’t taken by surprise when tax season rolls round.
4. Put in place an emergency fund
An emergency fund is an essential safety net, especially for freelancers. What would you do if you couldn’t work (due to an unexpected accident or illness), if you were faced with an unexpectedly large and immediate business expense, or if an invoice isn’t paid on time? Aim to get your emergency fund to a place where it can sustain you for at least six months if necessary so that not all is lost if you hit a major bump in the road.
5. Spread your wealth
While you might love what you do and want to give all your money to growing your business, it’s never a good idea to place all your eggs in one basket. Don’t put all your extra money or earnings back into your business – split it up. Speak to a trusted financial adviser about your financial needs – business, savings, retirement, investment... Make sure to spread your wealth as it is most needed and best used. For example, you won’t be able to work forever so, thanks to the power of compound interest, the sooner you start saving for retirement, the better.
The freelance life can be feast or famine which makes financial processes like cash flow management challenging.
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