Freelancing gives you the freedom to take whatever jobs you want. You also get your money tax-free! Which can be a good thing or a bad thing depending on how you look at it. Here are the top 10 financial planning tips for freelancers.
Withhold for Taxes
If you are a freelancer you should be withholding 25 to 30% of your money so you can pay taxes on it when tax season comes around. This may not seem ideal, but you will thank yourself when it is time to actually pay your taxes. You can also pay quarterly taxes if you make enough money throughout the year so you won’t owe as much later on.
Have a Simplified Financial Tech Stack
A financial tech stack includes all the applications you will need to help you with your finances. This could be different banks, different accounting apps, and invoicing apps. Having a good financial tech stack will help you with your stress and make sure everything has a place and goes where it is supposed to.
Automate Your Finances
You should set up as many automations as possible when it comes to your freelance earnings. You can set it up where you put aside 25-30% automatically anytime you get a payment. This can go to a separate account, making sure that the money you need for taxes isn’t mixed in with what you need for saving.
Do Your Bookkeeping Frequently
It’s best to not wait to do your bookkeeping because that can cause a real headache during tax season. You should set aside some time to go over your transactions either twice a month or monthly. This will save you from being overwhelmed and will help you be prepared come tax time.
Know What Deductions You Can Have
Knowing your deductions is important and can help save you money when it is time to pay taxes. You can use eligible business expenses and write those off. Whatever you write off takes away from the taxable income you had for the year.
Get Insurance
The one noticeable thing that is missing when you do freelance is insurance. You will probably have to buy your own insurance, which can include health, life, and even car insurance. Making sure you are insured will help you when things don’t go as planned. Everyone needs insurance!
Invest in Yourself
Investing in yourself is investing in your skillset. You can take classes to sharpen some of your skills and then make more money later on. The more profitable you are, the more cash flow you can have rolling in.
Make Investments for the Future
It is a good idea to invest in your future. You might want to retire someday, so it will be good to start saving money now for when that happens. You can open up your own 401(k) and start putting money aside in there or you can get yourself an IRA. You have control over your future by saving today.
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Build Cash Reserves
You should have savings for 3-6 months for your personal account and 1-2 months for your business account. This will help you if something happens like you lose clients. You will then have this money to fall back on and you won’t have to worry about where the money is going to come from.
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Hire Help When You Need It
There is nothing wrong with needing help in the financial world. If you can afford it, why not hire someone to help you out? Just make sure you know why you are getting a financial advisor so they can better assist you. Just showing up with no plan will get you nowhere. You always need a plan so you can get the strategies you need to be most successful.
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