Being a full-time freelancer offers a great many freedoms which many will never experience. With this freedom comes the need to be financially responsible; as you do not have a solid income and the security which a salary provides, you need to pay a lot of attention and manage your cash-flow properly.
As a freelancer, your income can be unpredictable, so proper financial management is key to finding success in something the popularity of which is at an all-time high. Managing your money is an import aspect of being a freelancer. Some days, you will have more money than sense, whereas on other days you may not have as much money coming in.
If you manage your finances properly, you do not need to worry as much about the potential ups and downs associated with a freelance income.
Create and Stick to a Budget
Although you can earn a comfortable living through freelancing, it is still important to have a budget and stick to it. This doesn’t mean you need to live cheaply, though; it depends on your individual circumstances. What it does mean is that you should live in accordance with your means and make sure you are putting a little bit of cash away each month, so you have something to fall back on.
A budget where 50% of your post-tax income goes towards necessities, and 30% towards non-essential purchases is a great place to start.
Register Your Freelancing Activities
Depending on where you live, you will probably need to register yourself as a self-employed freelancer or sole trader – it will be the law. If you do not do this, there can be serious repercussions in the form of fines and penalties if you are caught not being registered and declaring your income for tax purposes.
You can also look into the option of registering as a company too, which has many differences to being a sole trader. For example, sole traders will pay personal income tax on all monies earned, which can push you into a higher tax bracket if you work as a freelancer to supplement your full-time income. Comparing this to a limited liability company, which is a separate legal entity, is taxed separately, the difference and potential tax savings are obvious.
Stay on Top of Taxes
Further to the above point, as a freelancer, you should make a point of staying on top of your taxes. Just because you are earning your income through freelancing does not mean you don’t need to pay taxes. It is important to get ahead of your taxes early-on so you do not get surprised by a tax bill at the end of the year.
As an employee, your employer would take care of your taxes. As a freelancer, you work for yourself, so it is something you need to manage. It is a great idea to put aside income each month towards your taxes. Calculate exactly how much of what you have earned in any given month needs to be paid as tax and put that aside in another account. That way, when the tax bill comes, you have the exact amount ready to pay.
Save Towards Retirement
If you freelance full-time, you should definitely be putting some money away towards retirement. Again, as an employee, your employer would set up retirement funds for you but, as a freelancer, you cannot take advantage of such a luxury.
Consider investing around 10-20% of your income towards retirement, or more if you can afford it, so you have an extra financial cushion further down the line.