In today’s wild and crazy world, more and more professionals are turning to freelance work to fulfill their needs for both flexibility and personal fulfillment. Of course, going from employee to being your own boss comes with a variety of challenges.
Just as important as mastering how to market your skills and secure your first clients, the newly self-employed must learn the ins and outs of personal finance. Here are some handy tips to help you better navigate the freelance world.
1. Invest in insurance
Being a freelancer comes with a tremendous amount of freedom regarding the when, how, and where of your occupation. But, as you are technically a small business owner, all that freedom forces you to pick up some of the financial responsibilities that a corporation might already have in place, specifically insurance. In the age of the pandemic, ensuring your insurance policies are up to snuff is more important than ever.
- Liability policies protect you from potential legal action from lawsuits and damages.
- Property insurance keeps your investments safe in the event of physical damage to your workspace, equipment, or inventory.
- Health and personal disability insurance policies are crucial when you and your family rely on your income to pay bills and meet daily needs. If you can’t work because you are sick, you need a backup plan.
- Life insurance can help pay off any debts and provide for your family in the event of your passing.
However you decide to handle your insurance decisions, protecting yourself, your family, and your business assets should be a top priority for any freelancer.
2. Keep an eye on your credit
Like it or not, credit is important — maybe essential — to forming and running a profitable business, no matter your specialty. Without established personal credit and beneficial financial habits, it will be difficult to obtain business lines of credit. If your personal credit is lacking, it is essential to understand the steps needed to pull yourself out of your “credit pit” and get back to level ground. Building your business credit is imperative to improving your business.
According to the SBA, 46% of small businesses are using personal credit cards for business expenses. If your credit isn’t ideal, this will limit the options for small business lines of credit, including cards and government-backed loans.
3. Take care of your estate
Much like insurance, ensuring the long-lasting health and prosperity of your family and estate should not be overlooked. Even though such thoughts might be nonexistent in your mind, creating an estate planning checklist should be an essential step in your freelance and small business life. An estate plan ensures that your business, estate, and family are financially safe and secure should the unthinkable come to pass.
A checklist allows you to set up long-term plans for your family and businesses, even after you’ve gone. It can also help you determine which charities to contribute to, and secure your advanced directives regarding medical decisions. Don’t wait for the worst time to make the best decisions.
4. Separate your finances
Separate accounts allow you to keep your life’s finances separate by creating straightforward income and expense records, distinct tax records of business expenses and tax exemptions, and, most importantly, keeping all business actions separate from your personal accounts.
Having a business account also allows a freelancer to register as a legal business entity. This comes with tons of perks, as it makes you eligible for small business services, as well as funding opportunities specifically for small businesses. Once you’re official, be sure to check out funding programs designed specifically for your industry or demographic, like small business grants for minorities.
5. Spend wisely
Once your gigs are profitable, it can be daunting to decide how to manage and spend your money. Paying yourself is essential, and you should continue to improve your business with the gear, gadgets, and equipment that will allow you to stay on top of your game. The intelligent method of handling this is to create various accounts for your savings and expenditures, such as an interest-earning savings account. More importantly, give yourself a monthly budget (and follow it).
As a freelancer, some months will be more lucrative than others. While it is often prudent to stick higher-than-average earnings into a savings or retirement account (more on that later), you can also use these heavy months to invest back into your company. Income is never set as a freelancer, so be sure to look into the future far enough to ensure you’re safe from unexpected pitfalls.
6. Know your tax rules
Paying taxes as a freelance or self-employed worker can seem a bit daunting at first. Unlike traditional employment, none of your taxes will be withheld, which means you will be responsible for calculating and paying the appropriate tax amounts on time. Additionally, taxes for freelance workers are due every quarter, so having taxes in your mind throughout the year is an important difference from individuals who pay just once a year.
A great way to alleviate the stress of taxes is to open a high-interest savings account to hold monthly deposits just for tax purposes. Experts advise setting aside a specific percentage of your monthly income into this tax account (the portion is up to you and your finances). When tax time rolls around, you will already have the funds ready to go, and you might even find yourself with some extra funds for a little refund (thanks, interest).
Becoming a freelance worker is a big departure from the structure of corporations. But, with a little research and plenty of confidence, you can gain your professional freedom and finally control the rest of your life.
By Jessica Larson of SolopreneurJournal.com
The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.
