As freelancers, we often sit with these common questions regarding financial management: Should I maintain separate bank accounts? How can I effectively build my savings? What is the recommended amount to save for taxes and retirement? Are there tools to help me manage my finances?
It is well-known that setting up and managing finances as a self-employed individual can be a daunting task. The world of freelancing brings with it a unique set of financial challenges, from separating personal and business expenses to dealing with unpredictable income.
To put your mind at ease, we have gathered actionable tips and lessons learned from financial experts who specialize in assisting freelancers and entrepreneurs. Let’s dive into these useful tips, focusing on how freelancers can establish a solid financial foundation for long-term success!
Thanks to our friends at SumIt for sponsoring this blog post!
What’s the first thing self-employed creatives should do to set up their finances for long-term success?
When you’re a self-employed individual, it’s hard to have a sense of you versus your business. It is essential to have a visual setup for “what’s mine, and what’s not.” This can be achieved by setting up a business account, creating a tangible barrier that helps you mentally separate the two realms.
By having a dedicated business account, you can better track your income and expenses, ensuring a clearer financial picture for your freelancer venture. No more digging through a jumble of personal transactions to figure out which ones are business-related. It’s like finally untangling that mess of charging cables in your drawer.
✅ Pro tip: It’s essential to have a visual set up for “what’s mine and what’s not.”
What’s a common mistake freelancers make with their finances?
One common mistake is neglecting your business needs, particularly when it comes to taxes. It’s essential to address tax obligations promptly to avoid being caught off guard.
In addition to maintaining a business account separation, it’s crucial to establish a tax separation. Remember, the money allocated for taxes is not technically yours, and by keeping this mindset, you’ll be better prepared for tax obligations. Remember, almost all business owners spend Q1 trying to figure out how to pay taxes from last year. Don’t be that person!
✅ Pro tip: Hold the mindset that the money you put into a tax account is not technically yours.
Unlike traditional jobs with steady paychecks, freelancers face unpredictable income. How should one approach saving?
Here is a solid tip: approach saving in percentages of your income rather than fixed amounts. For example, instead of making savings a mandated $500/month, try to make it 10% of what you make. Whether you’re raking in big bucks or it’s a lean month, consistent contributions to your savings become a reality.
✅ Pro tip: By implementing a percentage-based approach, you can consistently contribute to your savings, even during months with lower income.
What should freelancers save for?
Think of four important savings categories: Taxes, Retirement, Emergency, and Incidental. Taxes and retirement are a MUST. Pay yourself first, and we don’t mean going out for a fancy dinner (although that’s nice too!). By saving for your future first, you’ll have less left to spend, keeping the pressure on and your financial goals in sight. If you leave saving for retirement last, it might never happen.
Start by creating a separate retirement bank account and depositing a dime for every dollar you earn. It’s a small step toward a brighter financial future.
✅ Pro tip: Get into the habit of putting away a dime for every dollar you earn.
Lastly, what discipline should freelancers instill?
Regular financial check-ins are the key to maintaining a strong financial footing. Experts recommend conducting financial check-ins every two weeks, aligning with the natural cadence of two-week sprints commonly used in various industries. This practice allows you to monitor cash flow, identify areas for improvement, and adjust your strategies accordingly.
Keep a close eye on your finances and make proactive adjustments to stay on track! Remember, time is precious when you’re a freelancer. Simplify your financial processes to free up time for your creative career and your personal priorities.
✅ Pro tip: Automate tasks like savings contributions and project revenue tracking. Take advantage of tools and apps, such as SumIt, to streamline expense tracking and tax withholdings. With simplified finances, you can focus more on growing your business and doing what you love.
Wrapping up
The journey of a freelancer may have its unique financial challenges, but fear not! Our panel of financial experts has provided valuable insights to help you achieve long-term financial success. By separating personal and business finances, prioritizing tax obligations, saving in percentages, identifying savings categories, conducting regular evaluations, and simplifying your financial journey, you’ll navigate the financial landscape with confidence. Financial success as a freelancer is within your reach. Implement these expert tips, and you’ll lay a solid foundation for a prosperous future.
TL;DR
- To create a clear separation between your personal and business finances, open a dedicated business account.
- Don’t neglect your taxes! Set up a separate tax account and immediately allocate a portion of your income to it. Remember, that money isn’t technically yours, so keep your hands off it! :)
- Approach saving in percentages rather than fixed amounts. Take, for example, 10% of your earnings, which ensures consistent savings even during lean months.
- Prepare for the future by saving for taxes, retirement, emergencies, and incidental expenses. Start with small steps, like putting away a dime for every dollar you earn, and gradually build a pool of money for your retirement.
- Use tools such as SumIt to simplify your financial journey. SumIt can help you track cashflow, set aside money for taxes, and build your savings contributions. With SumIt, you can streamline your financial tasks and focus more on what you love doing.
Remember, financial success is achievable as a creative freelancer. With these expert tips, you’ll be well on your way to mastering the art of managing your finances like a pro. If you need a helping hand along the way, don’t forget that SumIt is here to support you every step of the journey. Happy freelancing! ■
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