You’ve got to worry about your writing skills, getting new clients, creating contracts, and on and on it goes. It’s no wonder that many freelancers end up forgetting about managing their finances. With a few years of freelancing behind me, I want to share a few essential important tips for managing your finances.
Set aside money for taxes
The government always needs their share of your money each year, so you have to set aside money for taxes. The amount you should save depends on how much you’ll earn in total for the year, but 20-25% is about average. Every time I get paid, the first thing I do is transfer a portion into a bank account dedicated to my taxes. Getting into this habit is a great way to make sure you’re not tempted to spend the money on something else.
Save for an emergency fund
Saving money for an emergency fund is equally as important as setting aside your tax money. Your emergency fund will come in handy in two different ways. One is for unexpected expenses, like your car breaking down or booking a sudden flight to see family. The other is for months when your workload and income is less than usual. Your emergency fund can help cover expenses until your income goes back to normal. I recommend putting at least 10% of every payment into savings until you have 3-6 months of expenses saved - but if you can save more than that, keep on going!
Have separate bank accounts
At the very least, open up a separate business account to use for payments from clients and business expenses. If you enjoy being super organized, you may want to open up a savings account for your taxes and another one for your emergency fund. Separate accounts make it much, much easier to keep track of what’s coming in and going out.
Don’t forget about business expenses
It’s one thing to focus on the money coming in, but remember that there will be money going out too. Do you know how much you’re spending on business expenses? You need to budget for things like writing software, courses, and your Journo Portfolio Pro subscription. Be mindful of your expenses and work them into your monthly budget.
Keep track of everything.
Income, taxes, savings, expenses… again, it’s like keeping up with that three-ring circus. Learn to track your finances with a method you enjoy. You could create a detailed spreadsheet, or try using popular invoicing software like Wave Accounting or 17Hats. Invoicing software typically tracks all sorts of other information for you, like income, expenses, and even client info. Keeping tabs on all parts of your finances ensures nothing falls through the cracks or surprises you.
It might seem daunting to tackle your finances head on, but it’s an essential part of being a successful freelance writer. Spend time working through these tips and build the habit of going through your finances on a regular basis. Freelancing is always more fun when you’ve got your finances in check.