More and more people are trading in their cubicles for freelance opportunities. But one thing that many freelancers struggle with, in the beginning, is how to manage their finances. Freelancing can take on a variety of forms. You could be working the same 8-hour routine or you could be operating on a more flexible schedule. Whatever method you’re following, it’s important to treat freelancing as if it were a business – because it is.
Yes, with freelancing you become your own boss and you have full control over your workload and schedules. But you also become your own accountant, and that means keeping both your business and personal accounts in check. If you don’t take care of the little things now, you might end up in hot water in the future. In this article, we have highlighted money management tips for freelancers to start getting your finances straight.
1. Alter your money mindset
The way you think about money affects your overall relationship with it. This is why when you’re trying to improve your finances, the first thing you need to do is to alter your money mindset. Every person’s financial journey is different. This is why you mustn’t compare your experiences with other peoples’. We are all susceptible to feeling jealous of other people’s financial success. However, comparing yourself with others will only make you feel more stressed and left behind.
Instead of telling yourself “you’re not good with money” or that “money doesn’t come easily to you like it does for others”, you can take off a little bit of the pressure by just accepting things as they come. Change the stories you tell yourself and look at things from a different perspective. This will be tough in the beginning, but the longer you stick with it, the easier it will be.
2. Track your time
The old adage “time is gold” has never been more true for freelancers. Every second of your time counts, which is why you have to spend it wisely. Otherwise, you might get yourself in trouble. Long overdue tasks, unopened business inquiries, and an overflowing work schedule are just a few examples of issues freelancers may face if they don’t know how to manage their time. These problems can cause you to feel exhausted, which could affect your performance and the quality of your work.
Knowing exactly how much time you’ll need to finish a task can help you block out your day much more effectively. If you haven’t always been the type of person who tracks their productivity, this is your sign to start. There are dozens of time management apps and techniques you can find online. One of the most popular being the Pomodoro Technique. Here’s how it’s done:
- You choose one task from your to-do list.
- Set your timer to 25 minutes (or longer, if you want).
- Focus on simply doing this task for the duration of the time.
- When the timer goes off, you stop working.
- Take a break for 5 to 10 minutes to refresh your mind.
- Once your break is over, you can go back and set your timer for another 25 minutes.
The great thing about the Pomodoro Technique is that once you start getting the hang of it, you can extend your work and break times longer. It also helps boost your focus and concentration.
3. Separate business and personal accounts
If you plan on taking freelancing seriously, you need to keep your personal and business accounts separate. This lets you track and manage your expenses better, it also helps you budget your finances much more effectively. Furthermore, it makes you look more professional in the eyes of clients and prospects.
Your business is more than just a hobby – so stop treating it like it’s something that you just do on the side, unless that’s what it is for you. Separating your business and personal expenses also qualifies you for more substantial tax deductions, plus protection against legal and financial issues.
4. Set a monthly budget
Depending on the type of industry you’re currently operating under, you’ll want to set aside enough money to keep your business running. The toughest thing about being a freelancer is that you basically have to finance everything, from the tools and equipment you use to the office space you work out of.
Since most freelancers don’t have the assurance of a continuous income flow, setting aside a monthly budget to make sure bills and subscriptions are all paid for can save you a ton of headaches in the long run. Smart money management plays a huge role in your monthly budget allocation. You need to know which items you must prioritize and which ones you can set aside for a later date. Here are a couple of tips to consider:
- Invest in accounting software that can help you calculate both income and expenses.
- Break the task of budgeting down into smaller sections (e.g., tackling one issue every week as opposed to in a single day).
- Think of budgeting as a gift to your future self instead of a limitation you’re setting your present self.
5. Make the most out of discounts
If it’s possible to buy a high-quality item at a sizable discounted price, then by all means, take it. This not only saves you money upfront but also opens up your budget to other business-related expenses. Plenty of companies offer their clients great deals, especially if they’re frequent customers. You’ll also want to shop around for better products and providers, especially if you’re buying a high-value item, like a laptop or other electronics. Don’t just settle for the first thing you find.
6. There is value in second hand items
Although buying things brand new does have its advantages, there are plenty of refurbished items for sale that can offer the same amount of value (if not more). Take, for example, office furniture. Buying office furniture brand new can cost you around $1000 to $3000. If you aren’t at that level of flexibility in your finances yet, this type of big-money purchase could set you back a couple of months. Refurbished office furniture costs a little over $300 to $400 and can last you around 2 to 5 years, depending on how you take care of your equipment.
7. Opt for annual billing when you can
While monthly billing can look like the most cost-effective option, this can actually cost you more in the long run. Consider this: A monthly subscription to a web hosting service may cost you around $7.99. That’s around $95 per year. If you choose to pay annually, however, this may bring your costs down to a more agreeable $2.99 per month.
That’s a total of $35 per year, summing your savings up to a substantial $60. Of course, there are instances when this policy can’t be applied. For example, if you were looking at a short-term service subscription, it’s better to pay for the monthly fee instead of the discounted annual total.
8. Negotiate better rates
There comes a point where scrimping on expenses no longer seems like the most effective way to manage your finances. When that time comes, it’s probably best that you find a way to negotiate better rates with your client. Negotiating rates with clients can be intimidating. Most neophytes feel the need to set their rates very low, otherwise, they don’t feel like they could get clients. This is a big mistake and can cause you to lose out on opportunities.
You need to value the work you do the way you would value the work of your favorite author or artist. Otherwise, clients won’t feel as compelled to get your services, regardless of how affordable you make them. So, make sure you’re charging a good rate for the quality and amount of work you do. To do this, consider your monthly living expenses, operation costs, and taxes. Calculate how much your break-even number is, and charge your clients accordingly. Not only will this help you save more money but it will also help your clients see you in a more professional light.
Bottom line
Freelancing offers workers flexibility, control, and independence. That is why it’s no surprise that a lot of people want to give up their nine to five just to get a taste of the benefits on the other side. Still, freelancing isn’t all hearts and rainbows. Freelancing is essentially like running your own business.
You take care of everything from reaching out to clients to making sure tasks get done accurately and on time. It means more responsibility, more work, and more sacrifices – in exchange for control. If you’ve just started freelancing and are struggling to get your finances in check, take heart. The above money management tips for freelancers can help you get back on track.
