Freelance Tips: How to Keep Track of Your Finances
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From sorting your taxes to irregular pay, keeping track of your finances as a freelance proofreader can be a challenge. But solid money management is a vital part of freelancing. And with this in mind, we’ve compiled a few tips to make managing your finances a little less intimidating (and a little less time consuming, too). Make sure to:
- Set (and stick to) a budget.
- Use accounting software to track and manage your finances.
- Set money aside for taxes.
- Keep business and personal finances separate.
- Plan for irregular pay and downtime.
For more on all the above, read on below.
1. Set (and Stick to) a Budget
Spend less than you save. Sounds simple, right? In practice, though, that isn’t always true. And this is why you need to set an effective budget.
A good budget will account for all your income and expenses, business or otherwise, letting you plan where your money is going and helping you spend and save wisely.
Of course, a budget only works if you stick to it. This means reviewing your income and expenses regularly to make sure you’re still on track. With time and effort, your budget becomes a tool that makes financial planning and management a snap.
2. Keep Business and Personal Finances Separate
Whether freelance proofreading is just a side hustle or your full-time gig, separating your personal finances and business finances will make your life easier.
Most accountants suggest having separate bank accounts for your personal and business finances. This will help you manage your cash flow and stops you from accidentally paying for personal costs with business funds (and vice versa). It also allows you to easily identify your business expenses, which is important for tax reasons. And speaking of taxes…
3. Set Money Aside for Taxes
We know, we know… taxes (collective groan). A big benefit of freelancing is working for yourself. But self-employment affects how you pay your taxes.
Without a pay-as-you-earn type system, where your employer takes your taxes out of your pay packet, you’re responsible for working out and paying your own taxes. And it is thus wise to set aside money each month to make sure you can pay when taxes are due!
The amount you pay for your taxes, and even when you pay, will depend on where you live and how much you have made, so it is vital to familiarize yourself with local tax laws. And if taxes really aren’t your thing, consider consulting an accountant. The money spent will be worth it if you avoid any fees or penalties for late payment.
4. Use Accounting Software to Track Your Finances
Finding a system for tracking your finances is key to managing your budget. Thankfully, there is plenty of accounting software available. The most valuable features will vary based on your needs, but some key features to look for include:
- Income and expense tracking to help you keep track of your money.
- Banking and credit card integration to ensure your accounts are always up to date.
- Invoicing capabilities to make billing clients simpler.
- Tax calculation tools to take the stress out of paying taxes.
Need some examples? We’ve listed a few of our favorite accounting tools here.
5. Plan for Irregular Pay and Downtime
Freelance work isn’t always steady – some months you’ll have more clients than you can handle, then you’ll barely earn a thing the next. To help ensure financial success, then, you should build a financial reserve/emergency fund to help cover costs when work is sparse.
Stash away a little money each pay period and build up your reserves. Work toward saving one month’s worth of income, then build up to having three to six months’ worth. This will give you some breathing room during quieter times and help cover unexpected expenses.
In addition, setting aside a bit of money on a regular basis will make it easier to take time off, as you won’t have to worry so much about missing out on work opportunities. And as a little downtime now and then is vital for your health, budgeting for taking time off is essential!
Becoming A Proofreader
Want to earn a little extra money to help build that financial reserve? Our Becoming A Proofreader and Becoming An Editor courses come with a work guarantee for those who achieve distinction scores of 80% or above in both courses. Sign up for a free sample of each course today to find out more!
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