Working as a freelancer is very attractive to the younger generations. Gen Zs, Millennials, and Gen Xs (and even some Baby Boomers) thrive in fast-moving and mobile work environments. They crave meaningful experiences, love to travel, and are aware that their productive hours do not fall within the standard nine to five. Freelancing gives them the flexibility to enjoy all of these perks and not be tied to the constraints of a traditional corporate office.
These perks can come with a price, however. Freelancing is often project-based. Once a project is done, a client can decide not to renew the service or find another freelancer to work with. The next contract essentially depends on how satisfied a client is with the previous work that freelancers should always stay on top of their game.
The income from freelancing, therefore, is inconsistent especially without a long-term client who’s signed a contract. This also means that freelancers need to be more adept at managing their finances because they must always prepare for the months when they have few clients.
How can freelancers maintain a financial safety net while enjoying the fruits of their hard work? Below are some management tips that can help.
Declare a Professional Rate
A common problem among new freelancers is they don’t know how much they should charge for their services. Many end up charging less than the standard rate because they don’t know any better, or they want to attract a client as soon as possible (getting paid less is better than not getting paid at all).
Freelancers shouldn’t sell themselves short, though. Besides, services that are too cheap are often suspected of mediocrity. Better to ask for the average rate (go a little higher if you know your services and output are worth the money) and attract clients who know the value of your work and won’t demand so much for so little pay.
One of the keys to financial independence is living within your means. Never spend more than what you have; and even when you have more, don’t spend just because you can. Living minimally means living simply, focusing on experiences rather than material things, and avoiding clutter which is often just a waste of space and money.
Pay Off Debts Immediately
You may have to apply for a personal loan for one reason or another. That’s totally fine, since borrowing money is one way to build up your credit score. The important thing is to prioritize its payment. This means avoiding buying expensive items when you still have an outstanding loan that eats a huge chunk out of your monthly income. Wait until you’ve paid off your large debt, for example, before buying the new laptop you’ve been eyeing. Let this rule be your motivation to settle your loans as quickly as possible.
Create a Budget (and Record Your Expenses)
The key to living on a budget is to take a pen and paper and write down all of your living expenses in a month. This gives you a clear perspective of how much you spend on your wants and needs. Writing down a budget also makes it easier to pinpoint which expenses you can reduce or do without.
As you create a budget, apply the 50-20-30 rule of budgeting. This is a basic money management tip that financial advisers recommend for everyone. It allocates 50% of your earnings on needs, 30% on wants, and 20% on savings. Here’s a tip: if possible, classify the payments for your health, retirement, and car insurance policies under needs so that you can set aside a full 20% for your savings.
Hire an Accountant
Freelancers must settle their taxes and other mandatory duties every year. This is one of the disadvantages of working freelance: you don’t have an HR and payroll department who will process these payments for you. Given the complexity of taxation laws, it pays to work with a CPA who knows the ins and outs of filing taxes as a self-employed individual. This also prevents errors in the tax documents and processing, both of which can result in fines or legal investigations.
May these tips increase your knowledge and teach you how to better manage your money as a freelancer. Explore the blog for more tips on personal financial management.