Whether you're using the best coworking offices in Melbourne or working from home in Mississippi, the life of a freelancer requires you to budget and save. If you just moved from a more traditional job to freelancing, that can be quite the adjustment. Luckily, it's not rocket science-it's a relatively simple skill you can learn by following a few tips.
Below are our top 6 powerful tips for budgeting and saving as Freelancers:
1. Track your time
Time is money as they say, and that's especially true in the freelancing world. If you're paid by the project, then working faster raises your pay. If you're paid by the hour, then you need to know how many hours you worked. Lastly, if you're juggling multiple clients, then you need to know how long to spend on each one so you can divvy up your time effectively.
The best way to do that is to track your time. Online time-tracking software such as Toggl can make that a lot easier.
2. Create a budget
Although this tip may seem obvious, it's all too often overlooked. So, it bears repeating: create a budget. Begin with a monthly one. Determine what your expenses are. Then, follow the handy 50-30-20 rule to split up your income accordingly-put 50% toward needs (such as rent), 30% towards wants (such as subscription services), and 20% towards savings (such as an emergency fund).
3. Track your expenses
Freelancers need to track their expenses just as much as they need to track their time. This not only helps with budgeting (see above), but it also helps when tax time rolls around (see below). Luckily, there is a huge swath of budgeting tools that can streamline and simplify the process. For some, a basic app is best, while others need a more premium version. Whatever the specifics, just ensure you use it every time you incur a business expense.
4. Claim expenses
Being a freelancer incurs quite a few expenses. Luckily, you can claim many of those expenses to lower your tax bill. For instance, if you work from a dedicated office at home, you can often claim a portion of your rent, utility bills, and even the wear and tear on your computer.
If you need to travel around to meet clients or attend conferences, you can usually subtract business expenses such as fuel, airfares, and food. In addition, essentials such as office supplies, updated software, and other daily expenses are typically claimable. Although the specifics vary widely, finding and claiming what's applicable to you can lead to significant savings.
5. Save for taxes
Most freelance or gig workers fall under the category of independent contractors. In the US, traditional W-2 employees have taxes automatically deducted from their paychecks. Independent contractors do not. They have to do it themselves or hire trusted professionals to help them out.
To avoid an unpleasant surprise when tax time comes, it's important to set aside a portion of your income each time you get paid. Whether it's weekly, monthly, or quarterly, this simple habit will reduce your stress and boost your budget.
6. Set up a business account
Depending on where you are in your freelancing journey, it might make sense to set up a business account. A small business checking account, for example, can simplify the process of tracking your income and expenses. When it's time to get paid, transfer money from your business account to your personal account. Since the necessary documentation and account types vary widely, it's crucial to do thorough research beforehand.
Keep the above six tips in mind and you'll thrive as a freelancer.
