A freelancer’s income is unpredictable. However, budgeting is just as important for freelancers as it is for every person who is employed by a company.
While there are many perks that go hand-in-hand with being a freelancer such as a flexible schedule, keeping track of budget can be very challenging due to unpredictable, and sometimes unsteady, cash flow. Still, with proper budgeting and monitoring of expenses, you can fully enjoy the freedom and advantages of being a freelance worker.
Furthermore, since you are the one who’s solely in control of your productivity, how much money you can make always depends on how much time, energy and effort you are willing to invest in doing your work.
Here are some things that you should know to enjoy having a rewarding freelance career;
Manage unpredictable income with predictable expenses
The best way for you to keep up with your expenses against an unpredictable income is by prioritizing your needs. You would need to secure a specific amount of your income to cover all necessary expenses. Once all the necessities had been taken care of, you can manage the rest of your priorities.
This means that you need to be careful and meticulous with your budgeting in the same way that you have to be conservative with your spending. One good way to cover up for the hard times is by saving as much as you can whenever cash flow is good.
Learn how to value your time
When the gigs are great, expect them to be real and major time suckers. Thus, you have to understand very well the value of your time. Are you being paid enough for the amount of time and effort you’re spending doing this gig? If not, then maybe it’s time to expand your horizons and look for other viable freelance jobs that match the value of your time and hard work.
You have to learn that sometimes, the time you spend on a side gig is not used effectively as it could be – unless you really love what you’re doing.
Still, if you’re after financial stability, you have to weigh down your options. Would you rather do something that you love and be paid less for your time? Or, explore other options that might not appear as appealing to you yet can offer you far greater income?
Get proper insurance coverage
Your type of freelance work can help in determining what liability insurance needs you have to obtain. If you work as a freelance consultant, you may need professional liability insurance. If you’re into selling merchandise or general trading, you may need to get product liability insurance.
Furthermore, an LLC can shield you from some forms of liabilities – but technically speaking, not entirely. To gather more information, consider consulting a lawyer about this aspect in order to have the means to protect what you have worked hard for.
Gradually scale business growth
Create as many opportunities as you can but always make well-calculated risks and decisions. Remember that every endeavor has its own peaks and valleys. But if you’ll learn to identify all the opportunities for your venture, you will have more peaks and far lesser valleys.
One example is by embracing technology by using the internet to reach out to more clients and potential contacts. This is one way to scale your business growth. Just make it a point to take only whatever you can handle to maintain the level of quality of your work or product.
Save for taxes, retirement and savings
If you’re working as a freelancer, there is no company to back you up with an attractive benefits package. Still, this is not a reason for you to fear that you’ll be working for a long time without any retirement options.
Independent contractors actually have similar options such as solo 401(k), Simplified Employee Pension Individual Retirement Account (SEP-IRA), and regular IRA. You can also make some adjustments to lessen your tax liability and maximize your long-term growth.
Furthermore, without taxes that come out with every paycheck, you’re the one who’s solely responsible for keeping track of the amount you owe the government. Penalties for failure to pay your taxes increase over time from the date that they were supposed to be filed and expect to be charged with 5% of the unpaid tax that needs to be reported.
It may take you quite some time to master how to prepare for taxes as a freelancer but you can always hire someone to do it for you until you can manage on your own.
We also highly suggest that you practice discipline and self-control by taking 40% of every payment from a client and setting it aside into a separate savings account.
Come tax season, these savings can repay the IRS and ensure your peace of mind because what you’ve saved is aligned with what you’ve earned. After one year of paying taxes on time, you can more or less calibrate how much you’re required to save each month to move forward.