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Financial Tips for Freelancers

13 January 2018 No Comment

Results of a large scale survey conducted by Upwork and Freelancers Union show that the United States is home to around 57.3 million freelancers, making up for more than 35% of the country’s workforce. While working on one’s own time comes with a slew of benefits, job security is often a concern. Consequently, it is important that freelancers plan their finances well.

Keep track of Your Income

Any kind of financial planning starts by establishing how much money you earn. You should know just how much money you made last month, and how much you made in the same month in the preceding year. With historical data in hand, you know when to prepare for busy and slow periods, especially if you work on seasonal projects or have repeat clients. Using a simple spreadsheet gives you means to keep track of your income.

Think Zero-Sum Budget

A zero-sum budget is one that requires you to allocate every last dollar you have at the end of the month, with no money left in your checking account. When you do this you put all your money to work for you, be it through a savings account, a term deposit, or through other investment alternatives. To account for unexpected expenses that creep in every now and again, make a separate category in your budget.

Know When to Ask For a Hike

If you have to struggle to make ends meet even though you are putting in long hours, it may be time for you to increase your rate. This is usually not that difficult with longstanding clients, although asking relatively new clients for a raise may not be such a good idea. For all the new assignments you take on in the future, quoting a higher rate is not out of place. How often and how much you should you increase your rate by? A 10% hike every year is normal practice.

Get Insured

A 2016 report by Upwork showed that around 20% full-time freelancers do not have insurance. Without insurance, even a non-life threatening medical condition can set your finances back considerably. If you’re under 26 years old, it is ideal that you stay on your parent’s plan. If you haven’t touched the 30-year mark yet and have no dependants, a low cost catastrophic plan may work well for you. If you have a car, find out if the existing cover offers adequate protection in the event of an accident, and if not, consider your options again. Freelancers who have dependents should also consider getting life insurance.

Think Global

Freelancers are no longer limited by geographical locations and the internet gives you easy means to offer your services to international clients. This just leads to more opportunities, and you may get paid better too. When it comes to receiving payments from overseas, asking your clients to use specialist money transfer companies such as TransferWise or FrontierPay instead of banks is the way to go. This way, you benefit through better exchange rates and they get to save on fees.

Contact Your Accountant Regularly

Getting in touch with your accountant only around tax time may result in you not keeping track of your all potential tax deductions. Besides, burdening your accountant during a busy period might also end up costing you more.

Making Tax Deductible Purchases

Freelancers get several opportunities to make tax deductible purchases. However, while tax deductions are designed to work in your favor, making a purchase you don’t really need or cannot afford will do you more harm than good.

Planning for the Long Term

According to results of a 2017 opinion poll, 40% freelancers have no formal retirement plans in place. If you want to keep it simple, you may consider investing in a Solo 401(k) or a Simplified Employee Pension Individual Retirement Arrangement (SEP IRA).

Conclusion

Financial instability does not have to be a part of your life as a freelancer, especially if you play your cards right. Make sure you give it your all during the busy periods so you may unwind when things are going slow. Save for more than a rainy day, and think long term.

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