5 Personal Finance Tips Every Freelancer Needs to Know

Going freelance is awesome. You can work from anywhere in the world. You don’t have office drama. You can clock in as frequently or as infrequently as you want. And you can shape your business in whatever way lines up with your values.

But some aspects of freelancing can get a little complicated. How do you find clients? How can you make sure you work enough to pay your bills? What do you do about taxes?

One area that may seem daunting if you’re just starting out in freelancing or if you’re considering making the leap to the freelance world is personal finances.

I’ve been freelancing for about ten years and doing these five things helps me make sure not only that I don’t go into debt, but also that I’m living within my means and making more than I spend.

Money does not have to be a point of stress for freelancers. Here are five habits to employ to make sure you stay on top of your finances. 

5 Personal Finance Tips for Freelancers

1. Track every dollar you’re earning each month. I keep a spreadsheet that includes the date I received payment, the name of the client, and how much I earned. At the end of each month I tally up my earnings. This gives me a ball park view of my earnings (which is helpful to know) and preps me for #2. 

2. Create a budget based on how much you earned last month. About 5 years ago I started making a monthly budget the Dave Ramsey way. Every month I do Step #1. Then the following month I make a budget based on how much I made the month before. This is called a Zero-Based Budget. I allocate every dollar earned to a portion of my budget. I never have anything “left over.” If I have allocated money to every spending category and I still have some left over then I add it to the “savings” category. Here's a template. Because I make sure I allocate every dollar I’ve earned, I don’t live beyond my means and I’ve been able to invest, put money away for retirement, and save. I also use a spreadsheet to keep track of expense due dates. 

3. Have a separate credit card for business expenses. Whether you have a LLC or work as an independent       contractor, if you ever make any work-related purchases, it’s much easier to keep track of them and write them off on your taxes if you make those payments on a separate card than you use for your personal expenses. You will have to itemize those expenses for next year’s taxes so rather than having to go through every single transaction in your monthly statement each year, use a separate card and then you’ll know that every purchase made on that card is work-related. I also keep a document of any work-related expenses that I did not use my card for. Future me is already saying “thank you!”

4. Keep track of all work-related expenses. You’ve got a ton of deductions that you can make from your taxes. You just need to make sure you’re keeping track of them and that you’re aware of them. This includes deductions that you can make for a home office, mileage to and from meetings with clients, and professional development. For example, actors--you can write-off the cost of headshots, tap shoes, and the mileage to go to that callback 200 miles away! This is money back in your pocket. So keep track of it.

5. Figure out a system for tracking your invoices. Whether you use Freshbooks, Square invoicing, or just do it the old(er)-fashioned way and manually send invoices, figure out a system that works for you, number your invoices and make sure that when you send an invoice you jot it down and then check it off the list when you get paid. There’s nothing sadder than a freelancer who is convinced she hasn’t gotten paid yet but has no way to prove it because she never invoiced her client.

Bonus: hire an accountant to do your taxes. You’ve got W2s and I-9s and invoices and donations and work expenses and mileage. It’s a lot. Do yourself a favor and use a CPA to file your taxes. He or she can get you set up with quarterly payments so you do not owe at the end of the year. It’s a great feeling to stay on top of it and know that your relationship with Uncle Sam is in good hands.

Going into the freelance world is exciting and the nitty gritty business side of things can be daunting but it doesn’t have to be! If you’re ready to move to the next level of your freelance career, I’d love to spend some time one-on-one with you coaching you through this season so you can achieve the bigger and better that you’re meant for. Learn more about freelance coaching here.

(Reminder: opinions are my own. I am not a financial services professional.)