You don’t have to fear financial planning as a freelancer. Just like ripping off a bandaid, all the pain lies in the mindset. If anything, it’s much easier than you might think. Most freelancers overthink financial planning and never take the time to do it correctly, leaving them scrambling when it counts.
The importance of financial planning as a freelancer is immeasurable. Not only will successful financial planning set you up for a comfortable future, but it will also ensure your freelance business is around long-term.
Create and Maintain a Budget
A freelancer budgeting is comparable to a grad student budgeting. Both are trying to make their way with unstable and sometimes very little income.
Budgeting is critical for freelancers because our income stream isn’t as predictable as someone with a regular 9-5. With proper financial planning, you learn how to create a budget and maintain it over the years to stay ahead of the ups and downs of being a freelancer.
You can create and keep to a budget even if you’re unsure of your income for the month by:
- Calculating fixed essential expenses, non-fixed essential expenses, and non-essential expenses each month
- Choosing a specific budget structure, like the 50/30/20 rule or budgeting down to zero
- Using a budgeting tool
- Being flexible and thrifty
- Spending less on non-essential expenses
- Coming back to your budget regularly and making adjustments
- Finding creative ways to bring in additional income
Furthermore, a crucial part of any budget is saving for retirement.
Save for Retirement
One of the most critical aspects of securing your financial future is saving for retirement. As a freelancer, this can be complicated since most of the planning rests on your shoulders instead of sharing the responsibility with an employer.
Luckily, financial planning can help simplify saving for retirement. First, you’ll choose an appropriate retirement savings account, like a Traditional IRA or a Roth IRA. Then, you can allocate an amount to retirement savings in your budget and automate the contribution to this account.
Financial planning also helps you reach the rest of your financial goals, like accumulating an emergency fund for unforeseen situations, securing your children’s economic future, buying or renovating your home, or expanding your investment portfolio.
Next, financial planning can help you invest in your freelance career.
Invest in Your Freelance Career
As a freelancer, you’re responsible for all things that make your business run smoothly.
For instance, you may need:
- A customer relationship management system to manage your client relationships;
- A platform to manage your finances;
- A content management system for your marketing efforts;
- A high-quality laptop and additional software;
- Adequate equipment for your home office.
You’ll need sufficient funds to acquire all of these things. However, financial planning can ensure you have a plan for investing in your freelance career and that you know when it’s financially wise to do so.
Organize Your Business Finances
Financial planning also helps keep your business finances organized. Unfortunately, it’s easy to get overwhelmed with all of the financial documentation associated with freelancing. It can be a lot to keep track of, from tax documents to client invoices to receipts for business expenses to debt management.
When you take an in-depth look at your finances through financial planning, you can spend time listing all the financial aspects of freelance work. In other words, you can map out what you’ll need to keep track of financially and create a system for keeping these things organized, accurate, and well-kept.
Financial planning also helps you stay ahead of taxes as a freelancer.
Stay Ahead of Taxes
Taxes are probably the most daunting part of the financial side of being a freelancer.
Without taking the time to understand taxes as a freelancer, and what might be required of you, you could end up with significant financial penalties. If you manage to fall and stay behind on your taxes, legal action could even be taken against you.
During financial planning, you can:
- Estimate your tax payments;
- Determine when they’re due;
- Learn the importance of paying your taxes early and how to do so;
- Learn what the penalties are for late payments;
- Learn how to budget for taxes.
Lastly, financial planning makes it possible to prioritize your health.
Prioritize Your Health
Burnout is real when you’re a freelancer. If you’ve ever experienced the stress of a slow period with freelance work, you’re likely to overcompensate when work is available again.
But it’s a lot better for your holistic health and for the longevity of your business to prioritize your health and maintain balance.
That means getting health insurance and setting aside money for health-related expenses in your financial planning. You can sit down and compare health insurance plans and premiums before choosing one that’s appropriate for both your health needs and finances.
Furthermore, you can plan financially for taking sick days, vacations, and mental health days throughout the year. This ensures you’re covered financially during these times and can focus solely on replenishing your mind and body.
Make it a point to never neglect the importance of financial planning as a freelancer. Although it will take considerable effort and time to master financial planning, it’s worth it for the benefits mentioned above.
You’ll learn how to create and maintain a budget while saving for retirement. Financial planning also puts you on a pathway to reaching the rest of your financial goals.
Planning financially boosts your business as well, allowing you to invest in your career, stay on top of your taxes, and keep your business finances organized.
Finally, financial planning ensures you’re able to take time off and prioritize your health and wellness in a demanding freelance career.
Lily Bridgers says
I am on your side with what you said about how when you conduct a thorough analysis of your money through financial planning, you may devote time to compiling a list of all the financial ramifications of freelancing employment. As a freelance writer, I feel like money goes by so quickly due to reckless spending and spontaneous shopping trips. I feel like I could use some tips from a financial planning podcast that I can listen to every day.