Working as a freelancer comes with its share of benefits – you get to decide your own work hours, you can work from anywhere, and you don’t have to worry about what to wear or commuting to and from the office. However, inconsistent income requires that you save money for the rainy days to come, failing which you may end up high and dry at some point in the future.
Fortunately, there are simple measures that can get you on the right track and ensure that you have access to money as and when you need it. So, what can you do?
1. Consider How You Get Paid
In the fast-paced Internet driven workplace, working for clients from different parts of the world has become a norm for several freelancers. However, when receiving payments, they tend to lose part of the money they should get as fees. This problem is easy to circumvent by using a suitable intentional remittance service provider.
The TransferWise Borderless account, for instance, lets you receive U.S. dollars, pounds, and euros in local bank accounts, which can save you a tidy sum in fees. The account also lets you hold money and transact in more than 15 currencies. If you don’t want to provide your bank account details to your client, you may choose to receive payments through TransferWise using no more than your email address.
The WorldFirst World Account aims to serve as unified platform for global forex needs. It will give you the ability to receive funds and hold balances in different currencies, among other features.
You may, of course, turn to other specialist fund transfer companies such as OFX, TorFX, Currencies Direct, or CurrencyFair if you need no more than low fees and competitive exchange rates.
2. Use a Zero-Sum Budget
A zero-sum budget requires that you allocate every last cent of your income, so you have no money in your hand at the end of each month. Doing this ensures that you put every dollar you earn to good use. It’s understandable that you’ll face unexpected expenses almost every month, which you can deal with by creating a relevant category in your budget.
Here’s a likely scenario. You earn $5,000 per month and spend around $3,500. Instead of letting the extra $1,500 sit in your checking account, invest it in a savings account or a term deposit.
3. Think about a Rate Increase
If you’re having problems keeping up with your day-to-day expenses, a rate increase might be the order of the day. If you have a longstanding relationship with one or more of your clients, don’t hesitate to ask for an increase. Even if the increase is no more than a couple of dollars per hour, it can add up to a tidy sum in the long run.
For example, say your current rate is $15 per hour and you work an average of 120 hours each month. This puts your current income at $1,800 per month. If you increase your rate to $17 per hour, your monthly income will increase by more than $200.
4. Stay in Touch With Your Accountant
A significant number of freelancers get in touch with their accountants only around tax time. This approach isn’t the best because you might fail to track and keep records of all potential tax deductions. It may also result in additional work for your accountant, which, in turn, might end up costing you more money. Ideally, speak with your accountant early in the taxation year so you know what you’re up against in advance.
If you plan to file taxes on your own, make sure you’re well aware of all local taxation rules and regulations.
5. Think about Purchases with Tax Deductibles Carefully
As a freelancer, you’ll get numerous opportunities to make purchases that come with tax deductions. Using this as an excuse to spend can work as a drawback. While a tax deduction is great, don’t let it lure you into making a purchase you don’t really need. After all, you’ll still need to pay for it.
6. Plan for the Long Term
Results of a poll conducted by Greenberg Quinlan Rosner Research in 2016 showed that around 40% of the participating freelancers had no formal retirement plans. There are different avenues you can turn to when saving for the long term, and most financial service providers and mutual fund companies have offerings for freelancers. If you live in the U.S. you may consider investing in a Simplified Employee Pension Individual Retirement Arrangement (SEP IRA) or a Solo 401(k).
There is no reason why freelancers cannot save money effectively. All you need to do is exercise some discipline and put some thought into what you want to do with your money. Don’t forget to pay attention to the long-term as well.