Breaking away from the daily grind and the traditional 9 – 5 is appealing to many but can pose a financial danger to some. While becoming a successful freelancer is certainly possible, avoiding taking on debt requires you to be strategic. Read on for five ways to become a better freelancer and avoid going broke.
1. Save Your Money
When setting out to become a freelancer, it’s essential that you begin stockpiling your money. In addition to putting money away for savings, experts recommend freelancers save enough money to live on for six months without any additional income. This financial cushion will help to protect you when you’re in between projects, have a low-income month, and in the event of an emergency or disaster situation.
Though it may take a while to accrue this amount of earnings, make every effort to work towards this goal. Ultimately, as a freelancer, having more than enough money to live on will be more conducive to productivity than working and living paycheck to paycheck.
2. Work with an Accountant
Whether handling money comes naturally to you or you’re not a fan of numbers, working with an accountant is an effective way to make sure you stay on top of your finances as a freelancer. Without the regular pay periods of a traditional job, it’s easy to lose track of your savings, earnings, expenses, bills, and taxes. While you should make every effort to monitor these yourself, having an accountant will help you work towards building a financially stable life as an entrepreneur.
In addition to getting your finances on the right foot, an accountant will work wonders for you during tax time. Since filing taxes as a freelancer is a much more complicated process, having an accountant in your corner is important now more than ever.
3. Track Your Finances
As you grow your savings and begin working with an accountant, now is the time to create a meticulous system for tracking your finances. Whether you’re taking on one-off projects or working with long-term clients on lengthy assignments, it will be incredibly challenging to start earning or saving more if you aren’t actively tracking your earnings. This system will help you divvy up your earnings for your bills, savings, essentials, and other expenses.
An effective system for freelancers will help them to keep track of how much money they are making on a regular basis. This system should include how much work you’re completing on a daily basis, how much money you’re earning, and when to expect the payment.
4. Find a Healthcare Plan
While many freelancers go without healthcare, this type of situation can eventually drive you further into debt. To save yourself a potential emergency, make sure to have a plan in place for healthcare. Many freelancers purchase a basic coverage plan per month and consider self-employed loans for serious emergencies. These self-employed loans allow freelancers to cover emergency healthcare costs without going into debt.
5. Start Saving for Retirement
Retirement will arrive faster than you think. While many freelancers put off saving for retirement, true financial health involves actively putting a portion of your earnings towards retirement. Though you won’t have the benefit of an employer contributing to your retirement plan, there are several viable options when it comes to retirement funds for freelancers.
Experts share that saving money earlier on in your career will allow the money in your retirement fund to compound as much as possible. When searching for the most appropriate retirement fund, consider a Roth IRA. This fund will allow you to contribute a maximum of $5,500 a year, allowing you to easily start compounding your earnings for retirement.
Successful freelancing gives you the freedom to work for yourself and build wealth as you see fit. If you’ve chosen this path in life, be sure to follow this guide to keep your finances in check.
