Whether you’re working full time or part time as a freelancer, it is more essential than ever to keep track of your finances. Freelancing presents complex tax issues, and in all likelihood, you will be earning less than if you were employed full time. For this reason, it is important to be as organized as possible and save money as a freelancer.
Here are some tips to save money as a freelancer along the way:
If you are working part time as a freelancer, then your situation is far more complicated. You have to declare all of the extra income that you earn on top of your normal wage, and you will then be taxed taking all of this into account. Unfortunately, you may find that most of the time you are overpaying or underpaying, and are continually paying extra or getting refunds from the IRS. For this reason, it is essential for all freelancers to keep track of income, create invoices for all work performed and fill out a self-assessment form. As a full-time freelancer, bookkeeping is more simple, as you are effectively just self-employed.
Getting a full-time accountant does not make financial sense for most freelancers, and will potentially waste thousands of dollars or pounds per year. Instead, it is more beneficial to get a form of bookkeeping software that enables you to record income to expenditure, upload invoices and sync with your bank account, as well as submit tax returns.
Invoicing and payment terms
This is an area where many freelancers struggle. While it is important to build friendly relationships with your clients, remember that your client is hiring you to do a job and would drop you in favor of someone else if they could get the same quality for a lower price. It is important to be stern with your payment conditions: ensure they are set out in stone, that you require payment within seven to 14 business days of a completed project and implement late fees if clients don’t pay on time. Cashflow is one of the key areas to focus on for any small business or freelancer.
Keep your day job
This tip is arguably the most effective piece of advice a freelancer can follow, but also one of the toughest to accept. Whilst you are excited and eager to get started on your freelancing career, do not let passion cloud your judgement. Taking this step means you need to be practical and realistic. As much as you’re keen to go it alone, you need to make a calculated decision about what is best for your financial situation. If you decide to leave your current day job to focus all of your attention on your profession, you may quickly find yourself in hot water.
Take time to build your portfolio and client roster before quitting your job. If you expect work and money to flood in, you aren’t being quite realistic. Bills and living expenses occur regardless of your situation, and you need a consistent flow of money. If you keep your day job while freelancing on the side, you will create two sources of income while you develop your base. Yes, this means more work, but you need that commitment in order to succeed. Depending on your situation, you will find this is only a short term solution but it will allow you to save money whilst staying financially stable.