With the ongoing concerns of the COVID-19 pandemic, more and more workers are going remote — and still others have decided life is too short to spend working for someone else, and have decided to become their own bosses. Being a freelance worker has a lot of perks — you make your own hours, work in your pajamas if you want (depending on the job!) and generally enjoy a lot more freedom than someone working a regular 9 to 5.
But it’s hardly sunshine and roses all the way down. Freelancing can be just as stressful as a “straight job,” especially when you’re just starting out, and a lot of freelancers get themselves in financial trouble because they haven’t prepared for the realities of freelancing,
With that in mind, here are some tips to help you avoid just that kind of trouble!
Make a Budget
Even if you’re not a freelancer, you should have a budget — but especially if you are. One thing you may learn very quickly is that freelance work is not necessarily as steady as other professions. The phrase “feast or famine” gets tossed around a lot, and there’s a reason for that. So you don’t want to be blowing your money as soon as you get your hands on it. Spend your money wisely and know where it’s going. This will be especially useful when it comes to doing your taxes.
To successfully make a budget, you may consider using a budgeting system. One of the most popular methods is the envelope system. It requires you to categorize your expenses and allot an envelope for each one of them. When your income arrives, put the money that corresponds to your budget. That way, you can have peace of mind knowing you’ll not break your budget and spend extra money for a certain expense.
Set Aside Money for Taxes
This tip is near the top because it’s one of the most important things you need to know, and one of the top ways in which freelancers get into trouble. Being your own boss is great, there’s no doubt about that — but being your own boss also means being your own payroll person, and that means no one is taking out FICA or social security for you. Getting in trouble financially because you have to pay a huge lump sum of taxes can be stressful enough — you definitely don’t want trouble with the IRS. Make that budget work for you and hire an accountant if you can. Otherwise, you end up dealing with some serious consequences of tax debts.
Aside from getting IRS notices, if you have tax debts, the IRS will also place you in automated collection, which means that they will issue liens and levy your wages and bank accounts. Moreover, having more tax debts means the interest will also build up on your balance. On top of the interest rates, the IRS will also charge you with hefty failure-to-pay penalties.
Lastly, your inability to pay your tax liabilities may result in the IRS seizing your money and assets. When this happens, you might end up dealing filing for bankruptcy. In worst cases, if there comes a time when you need to file one, consider speaking to a bankruptcy lawyer who can provide you with a complete guide to filing for bankruptcy in Florida or wherever you may be located.
Track Income and Expenses
One thing that can help you with that tax burden? Writing things off. Anything you spend money on in the course of your business can potentially be written off, which means less of a potential shock for you when you get your filing results back. You can even potentially deduct your rent or mortgage if your office space is big enough — yet another reason to consult a professional about your tax situation.
To help you track income and expenses, you may consider using free tracking software to streamline the process. It can make your life much easier by understanding your expenses. It can help you become more organized in terms of your finances and be aware of where your money is going. To find the right income and expense tracking software, you can check out some options online or seek recommendations from family or friends who have used software for managing their finances.
Allow for Some Savings
Another side effect of being your own boss: there’s no automatic insurance plan or 401k. When it comes to planning for retirement — or even just saving up for a vacation or other big expense — you are entirely on your own. With that in mind, it pays to put away some money for the future, both for retirement and other things you might want or need.
The final drawback on this list: unlike a regular full-time job, you won’t have any health insurance unless you buy it yourself. One of the big advantages of a regular full-time job is the health insurance — a lot of people stay at jobs they dislike just so they don’t lose it! Getting your own health insurance can be a challenge — but not nearly as challenging as getting a medical bill that could drive you into bankruptcy. All is not lost, however. You have options. There are lots of companies to choose from, so shop around and compare, not just for health insurance but car insurance as well. As a freelancer, every penny you can save counts!
Have an Emergency Fund
Speaking of unexpected expenses — you never know what’s going to happen. Most Americans don’t have enough in their bank accounts to cover a major expense, and this can be especially challenging when you’re a freelancer and your income might not always be as steady as you like. An emergency fund isn’t just for things like accidents, medical emergencies, and damage to the roof (though those are all valid reasons to have one). You should also have some money set aside for those times when a client drops off the face of the earth, a project falls through, or your income otherwise changes unexpectedly.
Separate Work and Play
Finally, one of the most important things you should do as a freelancer is make a clear division between your work time and personal time. A lot of freelancers end up working more than 40 hours a week to make sure they hit deadlines and make ends meet. It can be easy to let work just take over your life, since there’s no boss telling you to go home or janitor to turn out the lights at the office. Much as you set aside money for contingencies, set aside time that’s just for you and your loved ones. Maintaining that balance is important if you want your business to continue to thrive.