Getting Started with the Right Mindset
Freelancing can be a dream come true for many: flexible hours, the ability to pick and choose projects, and the freedom to work from anywhere. But when it comes to finances, it can also be a bit of a nightmare if you’re not careful. Unlike traditional jobs where taxes are automatically deducted and a steady paycheck rolls in every two weeks, freelancing requires a proactive approach to managing money.
When you’re starting out, it’s easy to get caught up in the excitement of being your own boss. But that excitement can quickly turn into stress when you realize how much responsibility comes with handling your own finances. Without a solid plan in place, it’s easy to find yourself living paycheck to paycheck—or worse, struggling to cover expenses during lean months.
The key to building financial stability as a freelancer is to develop the right mindset. Instead of thinking of your freelance career as a “gig” that will last for a while and then fizzle out, treat it like a long-term business. This shift in perspective will help you create a foundation that allows you to build wealth over time and weather the inevitable ups and downs that come with freelance work.
That means setting financial goals for the long haul. Think about where you want to be in 6 months, a year, and 5 years. Do you want to have a solid emergency fund in place? Are you aiming to pay down debt? Do you want to save for retirement, or maybe even grow your business into something more? Getting clear on your goals is the first step toward managing your finances in a way that doesn’t just get you by, but helps you thrive.
Creating a Solid Budget That Works
Once you’ve adopted the right mindset, it’s time to get down to the nitty-gritty: budgeting. While it’s tempting to think that freelancing means you can throw traditional budgeting rules out the window, that’s far from the truth. A good budget is crucial for keeping your finances in check, especially when your income fluctuates.
The first thing you’ll need to do is track your income. As a freelancer, you’ll likely receive payments at different times for different amounts, depending on the work you’ve done. Instead of waiting until the last minute to figure out how much you’ve earned, start tracking your income from the moment you receive a payment. This can be as simple as using a spreadsheet, or you can use one of the many apps available for freelancers, like QuickBooks Self-Employed, which can automatically track your income and expenses.
Next, make sure you account for both your fixed and variable expenses. Fixed expenses are things like rent, utilities, and subscriptions that you pay regularly. Variable expenses are things that change month-to-month, like groceries or transportation. It’s important to build both types of expenses into your budget, so you can ensure you’re able to cover everything.
One major difference between a freelancer’s budget and a traditional one is that you’ll need to factor in taxes. As a freelancer, you’re responsible for paying your own taxes, which means setting aside a portion of your income for this purpose. A good rule of thumb is to set aside 25-30% of your income for taxes, although the exact amount will depend on your income and other factors. Setting up a separate savings account just for taxes can help you stay on track and avoid surprises come tax season.
Finally, make sure you budget for your financial goals, whether it’s building an emergency fund, saving for retirement, or reinvesting in your business. It’s easy to put off savings when money is tight, but starting small can still make a big difference over time. Consider setting up automatic transfers to a savings account each time you get paid, even if it’s just $20 a week. Over time, these small contributions will add up, and you’ll be much closer to reaching your financial goals.
Building Financial Resilience for the Future
Freelancing is a journey, not a destination. While it may feel like a rollercoaster at times, the key to making it sustainable is building financial resilience—basically, setting yourself up to weather the inevitable storms without panic or burnout.
One of the most important steps you can take is to build an emergency fund. As a freelancer, you don’t have the safety net of a steady paycheck, so it’s essential to have some cushion to fall back on during slower months or unexpected expenses. Experts recommend having three to six months’ worth of expenses saved up in an emergency fund, but if that seems overwhelming, start small. Even a few hundred dollars can make a difference when unexpected costs arise.
Another way to build financial resilience is by diversifying your income streams. Relying on a single client or project for all of your income can be risky. If that client goes away or a project doesn’t pan out, it can leave you scrambling. Look for ways to diversify your income by taking on different types of work, collaborating with other freelancers, or even creating passive income streams like digital products or courses. This will not only make your finances more stable, but it will also give you more control over your time and energy.
Finally, don’t forget about retirement. It’s easy to push off retirement planning when you’re just trying to make ends meet in the here and now. But if you don’t start saving for retirement today, it will be harder (and more expensive) to play catch-up later on. There are several retirement options for freelancers, including a Traditional or Roth IRA or a Solo 401(k). Talk to a financial advisor to figure out which option is best for you, and set up automatic contributions to make saving easier.
Freelancing is a rewarding way to build a career, but it’s also a journey that requires careful financial planning. By adopting the right mindset, creating a solid budget, and building financial resilience, you’ll be well on your way to crafting a freelancing career that’s not only sustainable, but financially secure for the long haul.