Money Management Musts Every Freelancer Should Know
Who here loves money? everyone cheers
Okay, but who loves meticulously managing their business’s money? crickets
If you’re like me, you started your freelance career because you love what you do, that creative thing you’re really good at that makes you and your customers happy. But I dread every moment I have to spend looking over expenses, thinking about taxes, and sending out invoices.
I would much rather be pitching or writing another blog post. Am I right?
The good news is that you don’t have to become a superstar bookkeeper, get your CPA license, or learn the tax code. You can hire professionals to do that for you and they won’t make mistakes where it counts.
But even if you outsource all the important stuff, you’ll still need a few essential money management skills to keep things running smooth.
As someone who despises all-things-business-finance and has a lot of experience freelancing, I have a list of the three most essential money management tips you have to know.
1. Earn a Living and Pay Yourself a Salary
As a freelancer, cash flow can be kind of hard. Money comes in as it comes in, so sometimes the coffers will be full and it’s easy to think “I’m rich!” And other times you’re in between projects, a client waits around to pay, or even worse, doesn’t pay at all and the bank account starts to look really sad, ensue panic.
The biggest problem here is that when cash flow is so inconsistent, budgeting becomes impossible. When you don’t know how much you have or will have, paying bills can be a scramble, saving or investing money is a challenge, and so many more things just become harder.
I felt like this for a long time. Then, at a conference, I got a piece of advice that made me go, “DUH, of course!”
The advice? Pay yourself a salary.
Start with figuring out what your fixed expenses are and tack on a little extra for your spending budget. Each month, pay yourself this regular amount. On months that your business does really well, you’ll pad your coffers. Then during the slower months, you should have enough to continue paying yourself a regular salary.
Ever since I started doing this, I have been so much more aware of what I spend and am much better at saving for my personal life.
2. Help Yourself Get Paid and Upgrade Your Invoicing System
Once upon a long, long time ago, when I was just starting out as a freelancer, I used excel to track my time. Then I would painstakingly calculate how much time I had spent on each client and manually write up each invoice. cringe. And back then, I had a really hard time keeping track of an invoicing schedule, which would often lead to me delaying my own income.
All of this added up to a lot of unnecessary work and headaches.
Today, I use FreshBooks and it has made all of this seamless. I can track my time directly in FreshBooks, and their system makes it easy to turn that information into an invoice, send it, and collect payment.
And to make sure I send an invoice, I put reminders in my Google Calendar. I like Google Calendar because I can also set recurring reminders for regular clients.
Because it’s easy, I don’t mind doing it. And because I don’t mind doing it, I get paid a little faster. Surprise, when you send invoices, you get paid.
I highly recommend FreshBooks. They’re not paying me to say that, but I still recommend it just because it has made my life so much easier. But it’s not the only system out there. Use the one that makes the most sense for you. But, do use something that can automate time tracking, calculations, and payments.
You should be spending as much time as possible on the work that earns you money, not the backend stuff like tracking your time and invoicing.
3. Don’t Forget Uncle Sam, Save 30% of What You Make for Taxes
Taxes are my least favorite part of freelancing. I don’t know anything about them and it is money not in my pocket. lame
I’m lucky because both of my parents are CPAs. So, when I was getting my business up and running, they made sure to set me up for success.
Their biggest tip: put back 30% of every paycheck and do not touch it.
It hurts, I know. 30% may seem like a lot of money to accumulate over the year. You could use that money to pay off student loans, go on vacation, or invest back into your business.
But here’s the deal: it’s not your money. It’s the government’s money and spending the government’s money is a surefire way to run your business into the ground.
I’ve seen friends who had promising freelance careers ahead of them. But when tax-time came around and they didn’t have money set aside to pay Uncle Sam, they were in trouble.
By saving 30% of your revenue, you will ensure you have enough to pay your taxes and probably more. Once your taxes are paid up, anything extra is a bonus for you! And if you ask me, that sounds way better than coming up short.
There’s a lot more that goes into really managing your finances and managing them well. But that is not what this is about. In my experience, I have left all the hard stuff to the experts, but there are still parts I have to deal with. For those, it’s about doing what is necessary to keep things running smooth. By paying yourself, making invoicing easy, and setting money aside for taxes, you can sidestep major issues and spend more time on what you actually like doing.