Working for yourself or freelancing means more freedom all around. But it also means less structure and less organization. This is particularly true and can be a huge problem when it comes to finances. In a “regular” job, taxes are taken out of your paycheck automatically and your employer is the one who worries about overhead, taxes, and how much running the business costs. Once you start freelancing, you have to always be aware of these things yourself.
Keep Detailed Records
One of the best things you can do as a freelancer to keep your finances in order is to get in the habit of keeping very detailed records. Use an online software or a spreadsheet to keep track of every purchase or payment that comes through. Make sure you keep track of dates, where the money is going or comes from, and what it was for.
You will be able to see over time how much money you’re making and how much you’re spending on particular things. For example, if you’re spending $8,000 a month on advertising, but only making $6,000 in profit, you should consider changing your budget. If you’re spending $5,000 on print advertising and $3,000 in online advertising and the online advertising is actually bringing you more money, you can cut the print advertising altogether and focus on what is bringing you results.
Organize All Paperwork - Physical and Virtual
Have folders everywhere. Organize your emails meticulously and save all electronic receipts. Save bank statements, checks, bills, etc. in an organized manner so you can pull them out for reference whenever you need to. Organize them by type and by date so you can always find what you need.
Have Separate Bank Accounts
Keep your spending money separate. Have one account for your business and one account for your personal life. This will prevent you from overspending in one area and makes it easier for you to “pay” yourself. If you’re trying to grow your business, you shouldn’t be spending money that will go toward business expenses on grocery shopping or vice versa.
Calculate Your Taxes Beforehand
Based on your income, you can figure out how much you need to put away for taxes. For example, if you make less than $9,325 in a year, 10% of it is taxable income. If you make between $9,325 and $37,950, 15% of it is taxable income. Google IRS tax brackets to find the chart and figure out what percentage of each payment you should put away for tax season.
Account for Fees
Depending on how you process payments from clients, you may end up paying fees. If you charge $1,000 for a service and have to pay a 3% fee to process it and a 2% fee to transfer it to your bank account, you may want to charge $1,050 instead to cover those fees. Otherwise you’ll find you aren’t making as much money as you might think.