Managing Your Finances As A Freelancer

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Your finances as a freelancer can be more complex than you might be used to when you were employed. You are responsible for much more than taking payments for a job well done, and it can be hard to understand. From planning your budget to paying taxes, here are some tips.

Understand International Laws

There are laws around how you are paid in some countries, and there are even some that don't take lightly to freelance payment systems. This is largely because they are not tracked by central government payment systems (such as PAYE in the UK), and services like Western International Trust Company Limited can help you with offshore asset management. This isn't illegal as long as you are open and honest about income, and report it as you are expected to.

Finances As A Freelancer Can Be Irregular

Unless you have some kind of contact worked out with a work provider, your income can be irregular when you work for yourself. This means you may not be paid on a weekly or monthly basis, and money can come in dribs and drabs or all in one go as an upfront payment. This is why you need to be responsible with your money as a freelancer because you may not know from where or when the next paycheck is coming, and work can dry up very quickly.

Make A Budget

Fiscal responsibility on a personal level is not a complex thing to manage. All it really takes is a good understanding of your income versus expenditure and a little forethought. Using free tools like Google Sheets, you can list bills that need to be paid and estimate dynamic expenses like groceries. You can then use simple formulae to calculate what your monthly or weekly expenses are, which you can then deduct from your known or expected freelance income.

Get to Grips with Your Taxes

One of the biggest mistakes people make when they are freelancing is neglecting taxes. Taxes can be complex, but things only worsen if you fail to address taxes correctly. This can even lead to criminal prosecution and prison. So, here are some tips for getting taxes done:

  • Use apps like Quickbooks for managing income and expenditure for tax calculations.

  • Find out what you can about the laws around taxes in your country, such as when to pay.

  • If you have a hard time with taxes, then hire a local financial accountant to do it for you.

  • Don't lie on your income reports because the penalties are not worth it if you're caught.

  • Keep on top of the payments you owe by paying on a weekly or monthly basis.

Staying on top of taxes is easier than ever, and it only becomes an issue when you neglect it. Learn when you are expected to pay and how much by using your government's online tax system. And remember, you can deduct expenses for things you only use for your career.

Keep An Emergency Fund

It always helps to have an emergency fund in case something goes wrong. This can be something unforeseen like a natural disaster, an appliance dying, etc. Yet you may also need money for something to do with your freelance career. For instance, a remote work job will become impossible if your laptop dies as a digital nomad. Further to this, it can also help to offset disaster by backing up your work and using secure cloud-based systems.

Vacation Finances As A Freelancer

One of the perks of working for an employer is that you get paid personal time off. As a self-employed freelancer, however, you have no such luxury. Therefore, you need to be more responsible with your finances by making sure you have funds to cover your time off. This is because you don't get paid if you don't work as a freelancer. Putting 10% of your payments away each time you get money from a client could go toward your vacation funds when you want some time off.

Consider Your Pension 

Another perk of working for an employer is pensions. The UK has workplace pensions where your employer matches what you pay. The US has defined benefit plans. When you work for yourself, you need to source a pension yourself. Pensions are highly beneficial because they offer a vital source of income when you retire. Using the money you pay in, your pension service makes investments and then adds the profits it makes to your overall pension pot. 

Summary

It helps to understand the laws of your country when it comes to managing your finances as a freelancer. This can also help you stay on top of your taxes and ensure you also pay a pension.