Freelancing is a great way to kick start your self-employment, and it can also be a great way to supplement your income if you are between jobs.
But, the freelancer’s life isn’t an easy one. In fact, most people that go into freelancing as a career choice don’t realize all the different challenges they will face. And there are plenty of them, trust me.
Often times, freelancing can be a “feast or famine” situation. But take into consideration a few (or all) of the below tips and you’ll be just fine.
In this article, I’ll break down the different aspects of freelancing people need to consider when taking on the career, as well as different ways to prepare for those challenges – which are mostly monetary in nature. We all love money, so pay attention.
1.) Your income source won’t be steady… at all.
Unless you are prolific at getting bids accepted, you’re probably not going to be working all the time. This isn’t always the case, as there will be stretches where you will be working quite a bit. Whether you are writing or working on something more technical, there will almost always be someone that is willing to outbid you. While underbidding can be an issue that you run into, you also have to take the client into consideration, as well, as they can pose a whole new set of problems (see point 2). This is especially true in the writing world.
The key here is, though, to not fall to a point where your bids put you in a tough financial position. If someone is willing to do a job for $300 less than you are for a $500 job, you’ve got to think that if you under bid, you are not only going to be wasting time on something you could have done for more money, but you’re also doing something that will hurt your checkbook in the future.
Also, though, there aren’t always jobs out there . You can manage this effectively with a few financial tips that will be outlined below.
2.) Clients Aren’t Always Good Clients
There are always tough clients. Sometimes they will ask you to write, re-write, and re-re-write a project several times over. They’re fickle, and they have every right to be. Remember that keeping clients happy is your first and second job in the freelancing world.
The most difficult clients, though, are the ones that refuse to pay you at all or don’t pay on time. This can be difficult if you need that source of income. If you’re not going through a freelancing service (beware freelancing sites! See link above), getting a client to pay can be a difficult task. Many businesses view freelancers as people who are easy to blow off. You’re not a part of their HR system, you’re not a part of their company, so you are not a priority. The way you can make yourself a priority is by providing a high-quality product. And, also know that not all clients are bad ones. There are several clients that I have worked with for years in a happy, professional relationship.
3.) Schedules are Important
Chances are that as a freelancer you won’t go to an office every day. It can be tough working from home, waking up for a 9-5 every day, all while sitting on your couch in your pajamas.
The freedom can be intoxicating at first, but as time goes on, and as income becomes more and more important, boredom can start to creep in and cause you to become unproductive.
By setting yourself on a schedule every day – a schedule that you dictate – you can choose which clients you are working on that day, taking the stress of working on multiple clients each day out of the equation (not to say working on multiple clients each day won’t happen from time to time, but you won’t be as scattered if it is scheduled).
Financial Tips for Freelancers
Being financially sound when you’re a freelancer is the key to happiness as a freelancer. They say money doesn’t buy you happiness, but it sure goes a long way when you may not have a long list of clients during any given month.
- Create separate bank accounts
We’ll talk quite a bit about taxes and the IRS in this section. One of the ways you can make the IRS happy is by keeping separate bank accounts (they don’t like it when you mix personal money with business money – it can get messy. That’s when audits happen).
This separate business bank account will serve as the account that clients pay directly into. This should be the case even if you do own your business under your name. It just helps to clear up which money is income and which is personal money. We’ll get more into “payroll” in a bit.
Also, consider setting up another bank account that is specifically geared toward taxes. We’ll get more into taxes later in the article.
- Be Sure to Organize Your Receipts
Remember that audit thing? Of course you do. No one ever wants to be audited, but if you happen to fall under that umbrella of freelancers that get audited, it helps to have receipts available and ready to go.
To organize them, a simple folder will always do the trick. Then, all you have to do is make sure you regularly keeping, labeling, and dating the receipts.
Not only will this help you during an audit (not to say that you will, but it could happen), but it will also help you during tax season and with finances for your freelancing career.
If keeping little bits of paper and hand-writing them into books isn’t your thing, try getting some form of accounts program to help you keep track of the numbers. You’ll still need to keep the receipts, but it won’t be the only way you know how and where the money came from. This type of software will also help greatly during tax season.
- Pay Your Taxes
This may seem obvious, but you’d be surprised how many freelancers forget to pay their taxes because they don’t get their tax forms from a corporation. And it’s not just about paying your taxes, but it’s also about doing it on a schedule. Anyone can pay their taxes quarterly, and this is something that freelancers should absolutely take into consideration.
Before filing your quarterly taxes, though, be sure to check for any type of write-offs that you may be eligible for. Things that can be written off for freelancers are typically computers, printers, or anything else that you need to do your job.
Paying your taxes quarterly gives you small tax bills throughout the year, rather than getting one big bill from Uncle Sam at the end of the year. This is where setting up a separate bank account just for taxes comes in handy. Portion off some of your money each month into this account, then cut a check the government every three months. The standard rule of thumb here is to take 10-15% of your checks and put them in the account. After three months, send that money to the government.
The worst that can happen in this situation is that you’ve lowered your bill. The best that can happen is that you get a refund. We all love refunds.
Here’s more on taxes from Kiplinger.
- Get Yourself on Payroll
Rather than assuming that all the money that you make is going to you, it can help to set yourself up on a payroll program.
You may ask, “Why put myself on payroll? I’m getting paid directly from the client…” It’s true. You are getting paid directly, but this helps you keep your separate accounts (business, tax, and personal) actually separate.
Putting yourself on “payroll” serves several functions:
The first of these functions is that you feel normal. Normal is subjective, but by paying yourself on a regular basis, you’ll be able to do things like save for the future by putting money into accounts after “getting paid,” pay bills on time, and maybe even take that vacation you’ve been thinking about (because freelancing is not a vacation from real work).
The second is that you’ll get used to the money. Think of it like getting paid on an hourly basis. The more time you spend on a job, the more money you will make. This helps you be prepared for your “pay day,” and you’ll want to make sure that you get paid what you are used to getting paid.
The third is that you feel more in control of your finances. Just like with any job, when you receive regular paychecks, whether it be weekly, bi-weekly, or monthly, you know what is coming in and what you can spend. This also prevents you from sliding into that business account to fund your personal expenditures. It’s all about balance in the world of freelancing, whether taking on new clients or managing your finances.
- Get Healthcare
Health insurance premiums have gone up a pretty penny, so it may be difficult to get health benefits as a freelancer. But that doesn’t mean that you shouldn’t get them. You absolutely should. But how does this tie into the financial aspect of freelancing? You’ll see.
It might take a little research, but you can find a healthcare plan that fits your specific needs.
An option for those that can’t get in with a major healthcare provider (for whatever reason – they have a lot of them) is Freelancers Union. So if you get into a tight spot, you can always turn to them. Just remember that no matter which company you decide to go with for you healthcare, be sure to ask questions and seek answers that satisfy your needs.
Being healthy as a freelancer is just as important as being healthy is to a person that works at a corporation (or anyone else that works for a living). If you’re not healthy, you’re not being as productive as you can be, and that is where having healthcare steps in to play a vital role in making money.
The key to being a successful freelancer is making sure that you plan for the future and prepare for the present. Remember, it doesn’t always have to be “feast or famine” for us freelancers – you can beat that with sound financial planning and a little understanding of how the industry works.
Genevieve Coates is a freelance technology writer and staff writer for Speedy. She lives in Tampa, Florida, where she loves to tend to her massive “app garden”.
Category: Personal Branding