I’d just like to state upfront that I’m not the best person with money. Not that I can’t save money (I’m actually rather good at that), but when it starts to get a little complicated it starts to just go over my head. That said, these are things that seem to be working for me at this stage.
Have some savings
One piece of advice I see constantly coming up in regards to freelancing is to have a nice little nest egg of savings before you start. Doing this definitely helped me in some tough times when I just got started with freelancing, and I’ve continued to keep 3 months or so in earnings tucked away in case I need it again. I haven’t needed to dig into it for some time, but if I have a slow couple of months or aren’t able to work for some reason at least I’ll still be able to pay my rent. In the meantime it’s growing slowly in a high interest account, which is nice.
Keep a separate business account
This might seem obvious, but to begin with I just had everything jumbled into my personal accounts. It was a bit of a nightmare. Now I have a separate account that all my invoices get paid into, and all my expenses (including my wages) get paid out of. It’s much easier to see exactly how much is going in and out of the business and keep track of how it’s all going. If I don’t have enough to pay myself or my quarterly tax, I know I’m in trouble. If have surplus I can give myself a bonus or shift it into my just-in-case business savings.
Put taxes away to one side
I pay my tax quarterly, and it always seems to be a bit of a scramble to come up with the money. I can imagine it would be even worse if I were paying it only once a year, as I know some freelancers do. I’m finding it best to just keep that amount aside so it’s there when I need it.
Have a salary
Since properly separating my personal and business bank accounts, I’ve started paying myself a regular fortnightly salary. This amount is currently a modest sum, a bit less than what is left from my net income after tax and expenses have been taken out. I’m finding that having a regular, scheduled income makes it much easier to sort out my personal budget and savings. When everything was merged, I’d have a brief “I’m RICH!” moment straight after getting paid, followed by not keeping track of spending and winding up with not a whole lot to work with. If I’m really really ahead (including the amount I need to pay the tax man) then I give myself a bonus for being awesome.
Outsource the hard stuff
I use an accountant to do my end of year tax, and would probably get a bookkeeper to do handle things in between if it got too difficult. Dealing with tax and money to that extent is just a pain to me – I’d rather spend that time doing what I’m actually good at, and hire someone else to do that stuff.
I’m going to try and write a weekly post each Friday about what it’s like to be a freelancer! This is something that I find a lot of people are curious about, and there’s a lot of incorrect assumptions out there. If you have any questions for me on freelancing, leave a comment here or on Formspring.