4 Finance Tips Every Freelancer Should Know About

The gig economy has changed the way people perceive conventional “work.” Many are choosing to pursue their interests by freelancing full-time or part-time.

While gig workers enjoy more freedom compared to those in the corporate world, it also comes at a cost. One of the hallmarks of gig economy workers is the irregularity of work and pay. Unlike your usual 9-to-5 workers, freelancers don’t have regular monthly income, making budgeting more challenging. On top of that, they also need to shoulder their own 2000 dollar loans, healthcare expenses, manage their savings, do their taxes, etc.

To make the most out of your freelancing income, we’ve compiled four finance tips you should know about:

1.    Keep Your Personal and Business Bank Accounts Separate

Freelancers are essentially small business owners since they sell the services they offer. So the first thing you need to do as a small business owner is to keep your personal and business bank accounts separate.

This streamlines the bookkeeping process because you wouldn’t have to sift through all of your transactions to see which ones are personal and which ones aren’t. You’ll be able to save time and effort when tax season comes.

You can separate your finances by opening another account with your current bank to use for freelancing income and expenses. Another suggestion is to choose a different bank for your small business. If you choose a different bank, you can have several accounts set up in one bank. Having all your business account in one bank makes it easier for you to track the money that goes in and out of your business.

2.    Set Fair Rates

Freelancers who are new to the industry often charge too little because they often fail to consider certain expenses their former employer used to cover. Now that you’re running a freelancing gig, you need to set fair rates and get enough gigs to pay for the benefits yourself.

Here are some of the expenses you might want to consider when setting your rates:

• Taxes vary depending on the city and state, but it’s a good idea to set aside at least 25% of your initial payment to taxes so you’ll have more than enough when tax season comes. You’ll need to know what kind of independent contractor you are according to the IRS to see the tax obligations specific to your industry. In most cases, you’ll likely pay self-employment tax every quarter.
• It’s important to build a financial cushion early on so you could have a fun, secure, and comfortable retirement. Be sure to consider this while you’re setting your freelancing rates.
• Health, life, and disability insurance. Insurance is another factor you might want to consider. While health insurance is mandated by law, you can also include disability and life insurance.
• Lastly, you also want to ensure that the rates you set will allow you to set aside money for the purchases you make in the future.

3.    Have an Emergency Fund

Freelancers should get in the habit of setting aside a percentage of their income to build an emergency fund to prepare for unexpected issues, such as broken appliances, medical bills, and repair and maintenance. When unforeseen problems arise, an emergency fund keeps you from racking up your credit card bill.

Once you’ve accumulated enough money for your emergency fund, be sure that it should only be used for emergencies. It can be tempting, but avoid using it for weekend trips, new iPhones, shopping, or other non-emergency expenses.

4.    Convert Your Money into Work Hours

A few occasional splurges won’t break the bank, but if you’re “rewarding” yourself with unnecessary purchases every time you get paid, you’re probably overlooking other areas of your finances. To help you save money, convert the value of money into work hours. For instance, how many hours of freelancing work do you need to put in to pay for a 500 dollar bag? If you think of the hard work you had to put in to earn $500, you might think twice about spending it.

At the same time, you won’t get carried away if you come across a substantial amount of money. While it can be tempting to jump at the opportunity to spend money, it’s better to save the extra cash or use it to fund your freelancing career.

The Takeaway

Financial management can be tricky for freelancers, but it helps to review your current income, savings, expenses, and insurance. Evaluate your spending and be honest with yourself. By implementing these four finance tips, you’re on your way to becoming a financially stable and secure gig worker.