As a freelancer who likely works from home, staying organized when it comes to finances can be challenging.
I remember when I first started freelancing; having just graduated college I started freelancing as a way to build my portfolio until I found a full-time job. At the start, I wrote one freelance article a week for a local newspaper. By the end of my first year freelancing, I more than doubled my workload but failed to keep good records.
My financial disorganization did not hit me until my third year into freelancing when I established a nearly full-time workload. As someone in my early 20s, I got excited to see my bank account increase. But, come tax time, I was overwhelmed.
In order to provide my accountant with an accurate summary of how much money I made, I had to go through every single email with clients (which I luckily saved) and quickly put together a list of every assignment with the amount made. My accountant at the time then instructed me to keep track of each assignment and how much I made on one Excel sheet and all my tax write-offs, such as a social media tool I paid for, on another.
While the Excel sheet worked better than not tracking anything at all, as my freelance business continued to grow, it was not enough.
A proud workaholic, today I work a full-time job in-house for someone else and also manage a successful freelance business on the side working for myself.
In my busy seasons, I’ve taken on up to 30 hours of freelance work a week. Without being organized with my finances (and time), my freelance business would be an utter disaster. Get your finances organized as a freelancer with the following tips that I learned the hard way.
Manage your finances all from one place with QuickBooks.
After I switched accountants (to one more experienced that my first accountant) and he saw my Excel sheets, he suggested I use QuickBooks.
QuickBooks is a financial management, accounting, and organization tool that lets you keep track of your finances all from one easy-to-use place. It offers various versions and packages. As a freelancer who works by himself and does not have any employees, I use the $10 a month online self-employed version.
I prefer the online version because I can access it anytime, anywhere from my computer and mobile phone. QuickBooks pro is popular among big businesses but I don’t recommend it because if your computer crashes, you lose everything.
This tool is also very affordable and easy to use. Hook it up to your bank account to track every expense, get tax reminders, track mileage from its app, and more. The only thing I think QuickBooks lacks is good customer support. I’ve found that sometimes the reps are not that knowledgeable and I’ve had to figure out issues myself, but as an organization and financial management tool, you can’t beat it.
Keep your freelance income in a separate bank account.
A lot of my freelancer friends work under their social security number and don’t have an actual freelance registered business. Without having a registered business, you can’t sign up for a business bank account. But, you don’t need to have a registered business to have a separate bank account for all your business income – just open a separate checking account.
Use a debit card from that account for all your business expenses and have the money you make go into it. In doing so, you can see all your transactions from one place without the clutter of personal purchases.
Overestimate taxes and monitor year over year income changes.
In the United States, our clients don’t pay our taxes. This was also something I learned the hard way when I really started making money in my third year of freelancing. When tax time rolled around, I got hit with an unexpected balance that I owed the IRS, at which time my accountant said I needed to start paying taxes every quarter.
I do know freelancers who only pay taxes once a year and since I’m not a tax expert, I can’t advise you on why they do that or when you should pay. However, from my own personal experience, what I can tell you so you don’t get hit with any surprises at tax time is that you should overestimate how much you have to pay in taxes and monitor your income each quarter.
My accountant told me if my estimates are too low then I would owe additional money and may be charged a fee for not estimating properly. Unless you have a steady business with the same repeat clients, how are you supposed to know what you are going to make? For the most part, my freelance work and thus income is up and down (as I believe many freelancers can relate to). My accountant estimates what I need to pay each quarter based on what I made the previous year, but luckily my income has increased year over year.
Monitor your estimates. If you find that you are making a lot more money than estimated, ask your accountant to adjust your quarterly payments.
Plan for slow months.
Freelancers who depend on freelancing as their single or first source of income need to plan for ups and downs. Analyze what you made each month last year and what the trends have been for your slow and busy seasons.
I’ve found that November and December right before the holidays tend to be my busiest months while March, April, May, and right around the 4th of July are slower. You know your business and clients best. Around what typically tends to be your slow months, have a plan to generate additional income and budget accordingly throughout the year.
If you’re looking for another way to earn some extra cash as a freelancer, you should consider looking into affiliate marketing. LeadsMarket.com has an affiliate marketing program that could be a good fit, so we encourage you to check it out. For freelancers who have a blog, a social media presence, or another way of driving an audience online, affiliate marketing can be a great way to increase your earnings.
Keep track of where every dollar goes with a budgeting tool.
I’ve tried tracking my personal spending by writing transactions down and then I tried Excel; doing so was a mess. Then, a few years ago I discovered Mint and my finances and life changed for the better. Mint keeps all my finances in one place, tracks my budgets, spending habits, bills, and investments. The tool can be accessed from a computer and also via a mobile app. To get started with Mint, create an account and:
- Add your bank accounts.
- Add your credit cards.
- Add your investment and loan accounts.
- Create budgets.
- Set goals.
When you go over a budget, Mint notifies you. As often as you’d like, check out the overview tab for a snapshot of your spending habits. To keep your finances in check, at minimum, I suggest checking in with a tool like Mint on a weekly basis.
Keeping your finances organized a freelancer is imperative for accounting purposes and your financial and mental wellness. Make finance organization part of your daily routine, like checking your email and following up with clients. For even more freelancing advice, be sure to check out the Engaging Worklife Blog from Monterey Premier.
Featured image credit: Unsplash.com
Latest posts by Luke Loftin (see all)
- How to Better Organize Your Finances as a Freelancer - August 31, 2019