Freelance life offers a lot of freedom. However, with great freedom comes great uncertainty. You might have a $10,000 month in June and a slow $2,000 month in July. You might complete a project at the start of October but not receive your full pay until the end of November. With these and other financial challenges in play, it’s crucial to have a strong financial game plan to ensure you’re always able to cover your costs, invest, and save for your future.
The Following Tips Should Help You in This Endeavor
1. Prepare for your tax obligations
Do yourself a massive favor and type “tax agent near me” into your favorite search engine. Find a reputable tax agent who specializes in freelance finances, and get in touch. This tax professional will be able to give you guidance on the best way to reduce and manage your tax burden. For example, you may be able to file quarterly taxes, allowing you to cover this bill in easy-to-manage increments.
2. Determine your baseline and uncover any income trends
Since your income is irregular, it’s important to center your budget around the lowest amount of money you might make in a month. To do this accurately, you’ll need to go back through your accounts and determine your monthly income for the last year or so (although, the further back you go, the better). From this, you can see what your lowest ever income was and also see if there are any seasonal trends.
3. Tweak your budget accordingly
With your baseline and any income trends established, you can now build your budget based on the worst-case scenario income-wise. Though you will, of course, be striving to earn far more than your baseline each month, you should treat your budget as though every month is going to be a low-income period. That way, you’ll always have enough to cover your essentials, and any excess can be distributed into your savings, investment account, and discretionary spending fund.
4. Build a larger emergency fund than you think you need
Most financial advisors recommend having an emergency fund capable of covering around six months’ worth of expenses. However, gig workers and freelancers should aim to save more. Unlike a contracted employee, you could be dropped by clients without notice, meaning you could have zero income at any time, with no buffer zone in which to seek out alternative work.
For this reason, you should keep directing a portion of your monthly earnings into your emergency fund until you have around a year’s worth of expenses covered. Doing so will buy you valuable peace of mind, which will help you sleep better, and in turn, allow you to be more productive and effective at work.
5. Invest in your future
As a gig worker or freelancer, you won’t have anyone setting up a 401k or superannuation fund for you. As such, it’s crucial to plan for your retirement yourself. There are plenty of retirement-focused investment accounts and self-managed super funds (SMSFs) available. If you need help determining which option is going to be best for you, don’t be shy about seeking the assistance of a financial advisor or SMSF accountant. These specialists can help you select the right account to suit your current and future needs. They can also help you manage your investment and any tax obligations that may go with it.
Follow these tips, and you’ll be all set up to manage the vagaries of freelance life without ever slipping into financial anxiety.
