Let’s talk money: 6 financial tips for Freelancers
How to manage your finances as a freelancer. Perhaps it is not your favourite topic to read about. But, once you know how to manage your money as a freelancer well it might actually become a topic that brings you all the comfort in life. Huxley provides you with 6 financial tips to get your admin right.
Decide on your income goals
If you work as a freelancer, it is important to decide how much income you wish to generate in a year. Therefore, you need to set realistic goals which also take in account the amount of hours you wish to work and the number of projects you need to take on for this. It might depend on your lifestyle if you can or want to work more, as well as the industry you are in and the skills you are freelancing for. It is always better to be a bit more cautious in your calculations, to avoid a deception at the end of the year.
Set project payment agreements
Agree with your client how you will be paid. You may decide to receive a percentage of your fee upfront by a down payment. However, milestone payments are also becoming increasingly popular. As the name already indicates, with milestone payments you will be paid for each milestone achieved. As a result, you will have a more regular income flow, and it reminds the client of the payments they have to make.
Register your hours
Registering your hours is not a necessity, but it can come in handy. This provides you insight in how efficient you work and you can give it to your clients straight away when asked for. For tax regulations this can also be beneficial.
How much do you budget for taxes as a freelancer
Taxes can always come as an unpleasant surprise. Therefore it is important to know how much you have to budget for taxes as a freelancer.
It is safe to budget around 25 to 30% of your income for taxes. This may sound like a lot, but the good news is you can deduct any costs you made to perform your job from your taxable income. Then, there are also person related taxes. This varies highly, as it depends on if you’re living on your own, whether you have a partner or kids.
Create an overview of any extra costs
It is easy to overlook any holidays and sick days. When you work as a freelancer, you usually don’t get paid when you’re not working. When you prepare your budget, always take your holidays and potential sick days in account. A safety account with money for emergencies can come in handy, when you’re as healthy as a fitness guru.
Prepare for retirement
At the end of the road most professionals retire. Prepare for retirement by saving around 20% of your income. Do note that it depends on your lifestyle on how much you need to save. You must also not neglect any debts you still have to pay. However, when you prepare well, your old days will be without any financial worry.