It’s estimated that about 36 percent of the American workforce is doing freelance work, and that number is expected to grow to 50 percent over the next 8 years.
There’s a reason workers are choosing freelance over in-house work. They can create their own schedule and have the flexibility to work wherever they want in the world. But the one downside of freelance work is the income can be a lot more volatile.
Freelancers need to put extra effort into personal finance if they hope to protect themselves from the ups and downs of self-employment. Here are the top freelance tips to improve your personal finance.
1. Plan for Inconsistent Income
The most difficult part of being a freelance worker is how much your income can fluctuate from month to month.
One month, everything can be going perfectly – your clients are paying you on time, work is steady, and you don’t have any unexpected expenses. But the following month, you might not have clients placing orders or you may have a big unexpected expense such as having to buy a new computer.
During times of “feasting” and making a great income, you need to put money aside for the months of famine so you aren’t completely out of luck and broke when things go wrong.
2. Create a Budget
Creating a monthly budget is a necessity for any frugal adult, but doing so with an income that changes each month is a lot more complicated.
When creating a budget plan, you have a few options. The first would be to simply create a new budget each month based on the previous month’s income.
Another option is to look at your worst month from the last year and create a budget based on that. This can protect you from overspending during months that are more difficult.
You can also take the average of the income you earned over the last six months and create a budget based on that number. To keep track of your earnings, you can use a paystub generator and have a file with all the paystubs from previous months.
3. Save for Taxes
One of the biggest shocks for new freelancers is the amount they owe on their taxes each year. People are often used to being an employee and having money taken out automatically that goes towards taxes. This can make it easy to forget the responsibility now falls on you.
You can calculate how much you should expect to pay for taxes based on your annual income. Then, divide that number by twelve and make sure you put that money aside every month so you’re ready to pay your taxes each year.
You can also set up quarterly tax payments to break up the amount you owe and make it easier to budget for.
Use These Freelance Tips for Personal Finance
With these freelance tips for personal finance, you can protect yourself from the inconsistency of fluctuating income and feel confident in your ability to meet your financial goals.
Looking for more financial tips? Check out the rest of our blog for more helpful content!