Financial tips for freelancers
Irregular paychecks doesn't have to mean an irregular financial plan. Balance your passion and your paycheck with these five money management tips for freelancers.
As an entrepreneur, solo-preneur or you-preneur, you're in the business of doing your thing – freelance work. You may face some unique challenges when it comes to freelancer financials. Things like balancing the budget, fluctuating income, surprise business expenses, DIY retirement savings and insurance.
Know your break even number
Your break even number is the amount of money you need to earn to cover your essential expenses like bills, food and other primary living expenses. Complete your budget and ‘star' all the expenses you have that are non-negotiable. This is the amount of income you want to shoot for every month to stay in the green.
Calculate your break even number
You can calculate the break even point for your business in a few different ways such as sales dollars or cost per unit. In order to begin the calculation, you will need to know the fixed and variable cost of your business. The fixed costs would include facilities, warehouses, storefronts, technology to do business (computers, software, telephones) along with advertising, while variable costs could include materials or labor. You will also want to know the contribution margin — what is the profit or revenue you are making from the product you are selling.
- Fixed costs ÷ contribution margin = Break even point for sales dollars
- Fixed costs ÷ (revenue per product – variable cost per product) = Break even point for products (units)
Keep business and personal expenses separate
Organize your freelance budget spending by keeping it separate from your personal budget spending. Not only will it help come tax time, but keeping business and personal expenses separate can give you a clearer picture of how much you spend on your business. Try putting all of your business expenses on a separate credit card or account to clear up any blurred lines between business and personal spending.
Your emergency fund should cover three to six months of those expenses you ‘starred' when you completed your budget. It can be especially helpful to ease stress in those months we wish we could have made more money. Start saving a little each paycheck, and consider stashing that money away in its own dedicated savings account to avoid the temptation to spend it.
Replicate corporate benefits as appropriate
You'll want to consider benefits you may need that are normally provided by a company - things like health insurance for medical expenses, disability insurance in the case you can't work because of disability or injury, or a retirement account. Talk to an insurance agent in your area to make sure you have all your bases covered.
Don't neglect your credit
Building and maintaining good credit can impact a lot of things in your financial life. From a mortgage for your home, to a loan for your small business. Check your credit score today and pull your credit report from annualcreditreport.com. Learn more about building your credit score here.
Remember your retirement
Don’t neglect saving for your retirement just because you are a business owner. Invest in your future by setting up automatic payment contributions to the retirement account that is right for you. There are 401k plan options to consider for small business owners.
It is important to work with a tax professional to ensure you fully understand the process of filing taxes for a small business and avoid costly mistakes for your small business. Consider paying your taxes quarterly throughout the year which would include federal, state and local taxes.
How much to pay yourself
As you start your new business, you will want to determine how much you should be paid for the work you do. It can take practice to figure out prices to charge in order to make sure you can cover expenses, while staying within the time capacity you have available each week.
You will also want to make sure you keep your personal and business expenses separate as this will help with taxes and future investors as your business grows.