Whether you work as a freelancer in addition to your main job, or your business as a freelancer is your main source of income, you will need to manage your money professionally, to be able to grow your own business and achieve the financial success that you aim to reach.
At first glance, the term money management may seem complicated and requires a higher education level or a university degree. However, it is much easier and as a freelancer you do not need to be an expert to do it unless you have reached the stage of the company. It is enough just to follow the simple steps that we will cover in this article to successfully manage your money and reach financial success as a freelancer.
The importance of financial management for freelancers
Although freelancing offers you the flexibility, that doesn't mean you'll find the road ahead; Because you will face some difficulties and risks, most of which will be related to the financial aspect. Similar to the regular job from nine to five that saves you your position according to the contract and provides you with a stable income every month.
Freelance work may be the opposite. You may lose your business with a client at any moment, whether as a result of financial pressures for your client or for some other reason. Also, the projects are not fixed. You may get several projects in a period and you do not find any project to replace them, which means that you will not have a guaranteed income.
Here comes the importance of managing your money to achieve financial success, in order to avoid the occurrence of any of the mentioned risks or others, and you must have a side account or an emergency fund for you as a freelancer in which you save money for months, especially if you depend for your livelihood on independent work alone.
Steps to financial success for freelancers
1. Create a separate bank account
If you are going to build your own real business through freelancing, you have to start right from the start. The first thing you must do is open a bank account separate from your personal account, because it will make it easier for you now and in the future, and will enable you to track your expenses and profits related to your independent work, and avoid any confusion with your personal expenses.
The biggest benefit of separating the two bank accounts is that it's easier to review your budget and pay your taxes, you won't have to sort through which financial transactions are personal and which are your independent business, and you will become more familiar with your sources of money in detail to be well prepared for almost everything that can lead to financial success.
2. Set a fixed budget
Although it is difficult to set a fixed budget for yourself as a freelancer due to the uncertainty of the projects you will work on and the monthly income that you will earn, this step is very necessary if you want to reach financial success in your own business. Allocate a percentage of your independent business income to pay taxes and various expenses your business needs such as rent, bills, etc., and another percentage that you can save for emergencies.
Rely on planning the budget that you will allocate on any tool that helps you, whether it is a spreadsheet, a notebook, or a money management application, all of which will help you plan for financial success. Also review the list of your existing customers and record all your commitments and expenses you need to know the amounts you need.
3. Set realistic goals
Setting financial goals as a freelancer will not be easy, due to its lack of stability in terms of the continuity of projects and job opportunities, as well as in terms of income, which will be related to the number of work you will complete.
Setting plans and goals from the beginning will prevent you from being stressed or falling into debt, and it is better or set goals for the next three months at the very least, with a process of adjustment and improvement over time.
To make it easier for you to reach your short-term financial goals, use the 50/30/20 form, which means that 50% of your income goes to your after-tax living expenses. 30% goes to your secondary needs such as entertainment, and 20% goes to your savings account.
4. Save money
Since you are your own boss in your freelance business, you will need to take care of your long-term future, by saving for your retirement. Transfer part of your income to your retirement account, and even if you do not get enough income in some periods, try as much as possible to allocate an amount of it and save it for retirement.
Your interest in saving now will benefit you later in terms of financial success. In addition to a retirement account, you can use your savings to pay off debts, obtain insurance, or use them for emergencies.
5. Diversify your portfolio
There is no doubt that working as a freelancer with a distinguished client on a permanent basis will make you feel comfortable and reassured. But it is a kind of risk, like the investor who owns one investment portfolio. All investors have diversification in their portfolios, that is, they do not invest all their money in one project, as if one of these investments fails, it will not lead to the loss of all the invested money.
Same for you as a freelancer, if your big fish loses your niche customer, you have to have a customer base to make up for the income you will lose from your customer. Learn how to diversify your client base to generate steady income from self-employment.
How can freelancers deal with financial crises?
What may cause you the most insomnia from your work as a freelancer is the financial crises that you may face in any period of your work. By following the steps that we have mentioned, you will be able to achieve financial success that will enable you to overcome any financial crisis you face. In addition, you should cut back on your expenses and change some unnecessary behaviors, which may cost you money without interest.
Always try to buy only what you need and what you will use and don't bother buying luxuries. Also, postpone any non-urgent purchase until you have plenty of money for it, instead of buying now what you think is necessary and still without enough cash to pay off your other obligations.
In these lines we have provided you with steps on how to plan your financial goals, rationalize your expenses and make informed decisions to achieve financial success from your freelance work. Share in the comments some of the ideas and steps you take in managing your money and expenses.
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