Freelancing is difficult yet very satisfying. It is the most effective way to pursue your passion while earning a living. The best part about freelancing is the flexibility to choose a kind of work that interests you, client you would like to work with and the workload you are comfortable with.
So far, so good; freelancing has a lot in store for you to manage, right from working to finding potential clients. But when it comes to money management as a freelancer, you might face hurdles, especially if you are not very good at keeping accounts.
So if you are unable to keep your cash flow at bay and find it challenging to save despite earning handsome amounts, you need to fix your money management skills.
10 money management tips
Hence, here we have listed a few tips for money management for freelancers that could come in handy for you.
1. Record your income and expenses
You can start with baby steps, such as keeping a record of your income and expenses. Recording each money move gives you a clear picture of the direction your income is eventually moving in.
It could be either every week or once a month. All you need is to keep track of your credit card bills, bank statements, and the money you make from all sources of income.
You must also update your expenses, whether personal or professional. You can organize all the bills and keep a note of them. Thus, you can finally analyse your income and expenses per month.
Maintaining a spreadsheet for keeping your records can be a significant step toward organizing things. Alternatively, you can also use websites like Welance to record your income and expenses.
2. Fix a budget and follow it
Record keeping is not enough if you do not take lessons from it. Besides record keeping of your income and expenses, you can prepare a monthly budget for yourself.
A budget can help you control and direct your money to reach your financial goals eventually. However, creating a budget is similar to just record-keeping unless you sincerely stick to it.
Hence, you must follow your budget as far as possible. Besides, you must adjust your budget every month depending on the statistics of the previous months. If you spent some amount extra one day, you must cut costs on the following days to maintain your budget.
3. Keep some funds aside for emergencies.
Financial emergencies show up without knocking. So you must be ready to tackle it under all circumstances. You can deal with financial troubles by maintaining an emergency fund. You can contribute to your emergency fund through savings.
During work shortages and income imbalances, your savings for emergencies must be sufficient to survive for at least six months. You can also use it for emergency repairs that might fall out of your budget.
4. Keep a separate bank account for business.
Keeping your personal and professional life separate is essential. The same is correct for freelancing. Hence, keeping a different bank account for business can also be a key to money management as a freelancer.
Separate bank accounts enable you to track your personal and work expenses. But it would help if you stuck to using a personal bank account for personal expenses and a business account for business expenses. Only then can you get an accurate result of your spending and income.
5. Deal with written contracts
Miscommunications are common in businesses. You might also face it from time to time with some clients and waste your hard work without the expected paycheck. Hence, contracts are the soul of business deals, and over that, written contracts can save you from misunderstandings.
Hence, you must always ask your client for a written agreement and clarify the terms, conditions, and payment details. Welance has a pre-formatted set of contracts, which freelancers can use and send to clients for review and approval. The inbuilt digital signature functionality within Welance enables you and your client to digitally sign the contract with no requirement of any paperwork or having a physical signature.
6. Send invoices regularly
Invoices are essential parts of your earnings as a freelancer since you may not get paid instantly for your work. Hence, maintaining and sending invoices regularly to your client can be a big catch for money management.
It is natural to forget about sending invoices. If you are working as retainer or on project where payments are linked to multiple milestones, you can use Welance to setup a recurring and milestone-based invoices, which are automatically send to clients based on due dates.
7. Follow-up on past invoices.
Sending invoices alone does not help if your client does not follow and clear them in time. It can create an imbalance in your budget and cash flow. Hence, you must follow up with your client on past invoices and make sure you get paid as soon as possible.
You may use platform like Welance, where you get notified once the client has viewed your invoice and Welance automatically follows up for pending payment based on the payment due date.
8. Calculate your per hour charges
As a freelancer, it is important that you accurately price your services inline with market as well as your cost, hence it is important that you should compute your total cost to serve, and work on optimizing your expenses and margin if your cost is higher than the fee charged by freelancers in similar profession. You can charge premium once you build up a brand or confident that the client is ready pay a premium for your services.
If you are not sure how to arrive at your per hour cost, you can take the help of the freelancer’s hourly rate calculator. It helps you compute your actual cost to serve a client given your expenses and expected profit margin.
9. Plan for taxes
Neither salaried employees nor freelancers are spared from paying taxes. You must make provisions for taxes based on your earnings. Make sure you get an estimate of the amount you may have to pay and keep it aside for tax purposes.
Most of your clients may deduct TDS before paying off your invoice, make sure you ask for a TDS certificate and check 26AS section to ensure the TDS has been deposited by your client
10. Use software like Welance
In the modern world, what could help you better than technology? Hence, you can also use software to track your money moves, record income and expenses, prepare budgets, and create invoices. You can automate the process through money management software like Welance and save a lot of time and effort that you can utilize in working.
Freelancing has many good sides with the capability to make you financially independent using your skills at their best.
However, it also brings money management issues due to a lack of time and management skills. But you can hone your money management skills with the tips mentioned above and utilize your precious time to enhance your business.