As a freelancer, you have the freedom and control to be your own boss, but ultimately, you remained the employee of your clients. Contrary to an entrepreneur, you don’t invest the money you’ve earned into building a company; you’re only trying to pay your bills. Nevertheless, for many professional freelancers, managing the money side of their business can be tricky even without commercial investment to monitor and plan. In fact, freelancing budgets tend to be evasive for newcomers or people with little experience, and that is the primary reason why unprepared independent workers are more likely to get broke. If you’re new to the freelancing world, here are some expert bits of advice to guide you through the troubled waters of budgeting.
Financing your professional equipment when you’re not a business
As a freelancer, you don’t have access to commercial loans, as your business is not a company. In other words, if you need funding for your professional equipment, you will need to look for personal car finance solutions and credit offers on the latest laptop. Nevertheless, funding repayments are deductible from your taxes, assuming you can demonstrate that the item is part of your professional activity. To put things clearly, you can’t buy entertainment material and claim it on your return tax. Depending on the kind of equipment you need, you can also use a leasing option.
The 50/30/20 proportions
When you’re a freelancer, your taxes are not directly taken at the source. You need to learn to manage your money effectively, so that you can face tax payments and other invoices. There is a universal rule used by professional freelancers and entrepreneurs which refer to a proportional division of monetary assets: 50/30/20. Indeed, you need to make a goal to live on 50% of your earned income. 30% of the remaining income is dedicated to your expenses, and 20% should go to savings.
Understand how to manage late payments
Do you remember that particular client who was always a little late on payments when you were working in an office? In the freelancing world, these clients are the worst as they can drive your business into debts. You need to develop a strategy to deal with late payers effectively. Using a specialist commercial debt management company to chase late payments shows up to 80% success rate. You can also investigate LPI – Late Payment Interest – so that you can claim your business debt recovery costs. This might also encourage the customer to pay in time in future!
Don’t start a new career out of the blue
Lastly, the best advice you can get is not to quit your job without a plan. Sure, we get it: you can’t stand your manager, or the office politics makes the work too stressful. But it takes time to build a freelancing career. It’s not a career where you can hit the ground running. You have to build a presence first. It’s something you need to establish before you quit your employment, if you want to avoid financial struggles.
Not getting broke, as a freelancer, is wrongly associated with how many clients you can get. In reality, managing your professional investments, your finances and client payments are vital skills to keep your budget in the green.