When working full time or part time as a freelancer, it is more essential than ever to keep track of your finances. Freelancing presents complex tax issues, and it is quite possible that you will be earning less than if you were employed full time. For this reason, it is important to be as organized as possible in order to save money as a freelancer.
Below are three tips to save money as a freelancer along your journey.
If you are working part time as a freelancer, you have to declare all of the extra income you earn on top of your normal wage, and will then be taxed taking all of this into account.
Unfortunately, you may find that you are often overpaying or underpaying on your taxes, and are continually paying extra or getting refunds from the IRS. For this reason, it is essential for all freelancers to keep track of income, create invoices for all work performed and fill out a self-assessment form. As a full-time freelancer, bookkeeping is simplified, as you are effectively just self-employed.
Hiring a full-time accountant does not make financial sense for most freelancers, and will potentially waste thousands of dollars per year. Instead, it is more beneficial to get a form of bookkeeping software that enables you to record income to expenditure, upload invoices and sync with your bank account, as well as submit tax returns.
Invoicing and payment terms
This is an area where many freelancers struggle. While it is important to build friendly relationships with your clients, remember that your client is hiring you to do a job and would drop you in favor of someone else if they could get the same quality for a lower price.
It is important to not only set your prices firmly, but to be stern with your payment conditions, as well. Ensure that they are set out in stone, that you require payment within X business days of a completed project and implement late fees if clients don’t pay on time. Cashflow is one of the key areas to focus on when it comes to freelancing.
Keep your day job
This tip is arguably the most effective piece of advice a freelancer can follow, but also one of the toughest to accept. While you are surely excited and eager to launch your freelancing career, do not let passion cloud your judgment.
Taking this step means you need to be practical and realistic. As much as you’re keen to go it alone, you need to make a calculated decision about what is best for you, financially. If you decide to leave your current day job to focus all of your attention on your freelance projects, you may quickly find yourself in hot water.
If you keep your day job while freelancing on the side, you will create two sources of income while you develop your freelance base. Yes, this means more work, but you need that commitment for long-term success.
Depending on your situation, you will find this is only a short-term solution, but it will allow you to save money while remaining financially stable.