- Date : 12/07/2021
- Read: 4 mins
Money management as a freelancer is not tricky as long as you follow some basic best practices.
The biggest upside of being a full-time freelancer is that you are your own boss. You can decide which clients to work with, which projects to take up, and how much to charge. Nothing could be better, right? However, on the downside, freelancing cannot guarantee a steady income. This can make money management a challenge. But with some planning and prudent spending, you can become a pro at it.
Trust us, it is actually not very difficult. And once you have mastered it, you will never think of going back to a 9-to-5 job!
1. Keep separate business and personal bank accounts: The number one rule of being self-employed is to maintain separate bank accounts. This helps you keep things crystal-clear. You know exactly how much you earned, what you spent on your business for website hosting, marketing initiatives, etc., and any personal expenses you incurred.
2. Create a monthly budget: To ensure you don’t spend more than you make, you need to create a monthly budget. A basic Excel sheet will do the job. This should include all your expected expenses in a given month – rent, utility bills, grocery, travelling, entertainment, savings, etc. Once you allot an amount to each section, ensure you stick to your budget by reviewing it periodically.
3. Predict your income: Clients usually take 45–60 days to clear an invoice. It may be difficult in the beginning as you don’t have cash coming in, but you will soon develop a rhythm. You know a couple of months in advance how much money is going to come in a particular month. This allows you to plan your expenses accordingly.
Related: How to earn more money with a part-time job?
4. Track your revenue and expenses: There are many apps such as Mint, Goodbudget, QuickBooks, Expensify, etc., that can help you keep track of every rupee coming in and going out. Ensure you feed in every expense, however small it might be. You will be surprised how quickly all your Swiggy or Amazon orders add up.
5. Time your invoices: A disadvantage of freelance income is that, unlike a salary, it does not magically appear in your bank account on the first of every month. You have to raise invoices and diligently follow up with clients to have them cleared. So it is important to time your invoices so that you have the money at the end of a month to pay your rent, credit cards and other expenses as soon as a new month begins.
6. Pay yourself a small salary: Often times, freelancers are just struggling to make ends meet. This leaves them very little time and money to do something for themselves. This can make freelancing a little frustrating. It is important to pay yourself a small salary, even if it is just Rs 10,000. Use this to pamper yourself, have a night out, shop, or save if you have no immediate need of the money.
7. Start an SIP or RD: As freelancing is unpredictable, it is imperative that you save while you earn. You can start small. Invest in mutual funds with an SIP that gets automatically deducted from your bank account every month. You can also start a recurring deposit for a small amount. With the power of compounding, in just a couple of years, you can have a decent amount saved up.
8. Set up an emergency fund: Having some liquid cash to dip into in case of an emergency is crucial. This can come in handy when you have less freelance work in a particular month, or an unexpected expense such as car breaking down or a home appliance going kaput. You can do this by transferring a small amount every month to a separate bank account, or by setting aside a larger chunk if you have a windfall.
9. Invest in insurance: Life is uncertain, so it is a must to have insurance. If you fall ill, the high cost of medical treatment can deplete your savings. Do take a health insurance policy. If you have dependants, it would be prudent to get a term insurance so they are taken care of if something happens to you. Buy insurance early as it works out cheaper when you are younger.
10. Plan your taxes: Staying on top of your tax commitments is critical as a freelancer. Keep track of all TDS deducted by clients so you know whether you need to pay additional tax or receive a refund at the time of tax filing. Also, make it a point to record legitimate business expenses that can be claimed as a deduction to reduce your income tax liability.