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5 Important Money Tips Every Freelance Contractor Needs to Know

17 November 2018 No Comment

More people are leaving full-time jobs and switching to freelance work. Here are 5 of the most important money tips every freelance contractor needs to know.

Thinking of going freelance? You’re not alone.

It’s estimated that nearly half of all Americans will become freelancers within the next ten years if current rates of freelance growth continue, and who can blame them?

There are all sorts of benefits to the freelance lifestyle, from independence to tax breaks. But which are the most beneficial from a financial point of view?

To help you, here’s a list of 5 of the most important money tips that a freelance contractor like yourself should know.

Sort out a Budget

The first thing any freelancer needs to understand is how much money they spend compared to how much they’re earning.

Your budget is critical to your financial health. You can’t afford to spend more than you have available.

Understand just how much you need to spend to cover your essential costs. We’re talking food, mortgage or rent, and any essential costs such as car payments.

You’ll also need to keep your business and personal finances as separate as possible for tax reporting purposes. To help you out further, check out this guide on how to budget your finances as a freelancer.

Build Yourself an Emergency Fund

As an independent freelance worker, you’ll quickly learn that the safety net of a regular paycheck is now a distance memory.

You’re going to have to deal with uncertainty. Your income will go up and down. What happens if you lose a client and can’t afford your bills?

That’s where having an emergency fund comes in. Try to save several months worth of income to cover your basic bills if things slow down or you face difficulties.

How much you save is up to you and how big you’d like your comfort zone to be, but six to twelve months would seem prudent.

Taxes, Taxes, Taxes

We’re not going to repeat any old cliches, but your tax bill really isn’t something you can forget about. The IRS won’t play nice if they don’t get their cut of your income.

You’ll need to make tax payments every quarter. These’ll be estimates based on both your current and previous earnings. Freelance workers can reduce their costs by taking advantage of various freelance tax breaks on offer.

You’re also able to write off your business costs as expenses to help reduce your tax bill. It’s best to speak to an accountant, however, to make sure you pay the right taxes on freelance work.

Talking of the IRS, here are six tax tips for self-employed workers.

Think About Retirement Early

It’s never too early to start putting together a plan for your retirement.

Investing in your retirement savings early allows you to save more and gain more interest on those investments. You’ll want to save a good portion of your income to allow for a comfortable time in your senior years.

There are various ways to save for retirement, from IRAs to your own 401(k) plans. Considering speaking to a financial advisor before you make any retirement choices, and look to save a good portion of your monthly income, where possible.

When planning for retirement, be sure to avoid these mistakes.

Get Your Records in Order

Whether it’s for yourself, your accountant, or an IRS auditor, you need to keep your financial records in order.

There are various financial software packages on offer to help you do just that. Here are some of the best accounting packages to help you choose.

Rather than making your financial records a chore, software like these take away the hassle for you, making it one less stressful thing to deal with.

If you’re a freelancer looking to hire others, you’re going to need to keep accurate records of how much you pay your workers. Use the Florida Pay Stub Generator to help you generate tax stubs and make your financial reporting easier.

Save Money as a Freelance Contractor

Being a freelance contractor can give you financial security – if you think ahead.

That’s why you should be constantly aware of your own financial position. Building an emergency fund and organizing your budget to reduce any wasteful costs should be the first thing you do.

Of course, don’t forget the freelance tax write-offs on offer for freelance workers. They can help boost your available income even further.

Check out some of our other personal finance articles for more financial tips and tricks to follow.

 

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