It’s been your dream for some time; you want to break away from the normal 9-5 and become your own boss. Working as a freelancer offers many benefits, including the freedom to work on your own schedule. But with those benefits come additional challenges that you didn’t experience when you were working under someone.
The biggest one of all? You have to pay yourself.
Okay, maybe that didn’t set in when you built your first portfolio or started writing for The HOTH. What do you do with that first paycheck? For some professional financial advice before you go and spend all your hard-earned money on fancy meals, keep reading.
Estimate Your Average Monthly Income
As a freelancer, it’s especially difficult to pinpoint how much you’ll make each month. As you learn how to budget, you should try to get as close as you can to your average income. An estimated number helps you determine where you should allocate your earnings.
A great place to start is determining which income sources are most consistent. These projects and clients form the base of your budget and should correlate with any monthly expenses. This way, you shouldn’t have to worry about late payments.
Any other sources of income are supplementary and go toward savings, taxes, emergencies, and other necessities. This is the part of your income that will fluctuate, so don’t rely on it to be there. View this blog on budgeting for how to plan around your supplementary income.
Offset for Income Tax
If you’re new to freelancing, you might not know that you have to cover your own income taxes. Gone are the days when your employer takes it out for you. If you’re not aware of this, you could find yourself paying out money you don’t have.
As a self-employed worker, you’re expected to pay 15.3% of your net income in taxes. These cover the Social Security and Medicare portions of the taxes you owe. When building your budget, great professional financial advice would be to put away about 20% of what you make into a savings account to cover taxes.
Separate Your Business and Personal Expenses
A redeeming factor, if you’re on top of your expenses, is writing off what you spend on your business. Working as a freelancer, you can receive notable tax deductions for funding your own utilities.
In order to earn as much back as possible in income tax, you’ll want to keep a close eye on your expenses. The most common expenses you can earn back in credit include:
- Travel and meals
- Office expenses
- Education and certifications
- Equipment and supplies
Don’t Forget an Emergency Fund
You’ll find this professional financial advice in any and every budget: always put money away for emergencies. Ideally, you want to have enough saved to cover expenses for three to six months. However, if you’re just starting out, having $1,000 tucked away is great in a pinch.
More Professional Financial Advice
As with any monetary decision, you don’t have to do it alone. Freelancers especially will benefit from pursuing professional financial advice. For more ways to secure your income or scale your business, check out our Finance section.