Financial Tips for Freelancers
It’s important to know why budgeting, emergency savings and other topics are essential to understand for anyone thinking about or already freelancing. At Bristol County Savings Bank, we are here to support your full financial needs, no matter what career path you choose.
Ranks of U.S. freelancers are growing
In 2020, 59 million Americans – or 36 percent of the nation’s working-age population – worked as freelancers, earning $1.3 trillion. Unsurprisingly, it was during this period that the global coronavirus pandemic disrupted, perhaps permanently, the work and commuting patterns of millions worldwide.Many wage-earners seized the opportunity to go to work for themselves, citing the need for financial stability during the pandemic. Freelancing, like entrepreneurism and other forms of self-employment, allow you chart your own course to personal and financial fulfillment.
It also means the burden falls directly on you not only to market your skills and drum up business, but also to handle financing, recordkeeping, procurement, debt-collection, among related chores.
Be financially prepared and responsible
But the biggest responsibility of all is ensuring you and your freelance operation remain financially sound. As with any money-making venture, a sound budget plan detailing your operational, marketing and financial goals is paramount. Some financial tips current or aspiring freelancers should consider:
- Set a budget. Knowing your recurring household expenses gives you a clear sense of how much income you must generate to cover them, plus make a profit. Doing so may tell you whether or not you can afford to freelance. Tally the costs monthly/annually to sustain your household: mortgage or rent; utilities; food; credit card, auto loans or other personal debts; and insurance premiums, including health coverage.
- Keep business & personal finances separate. Mixing the two can put a freelancer on the road to financial disaster. Set a freelance operating budget, apart from your personal one, to track freelance overhead and revenue.
- Estimate how much in freelance expenses you’ll incur: Mileage driving to and from engagements; costs to buy or upgrade your computer, printer or other digital hardware; costs of office furniture and supplies, etc. Consider a separate checking account to collect and disburse freelance payments.
- Sign up for a digital wallet, PayPal or other peer-to-peer (P2P) digital payment network to assist with your recordkeeping. That’s particularly valuable now that digital-pay networks must report to the IRS users who rack up more than $600 in transactions annually.
- Have emergency funds at hand. As we’ve witnessed recently, economic conditions can darken quickly. You should have funds set aside in checking or savings accounts, that you can access quickly, when necessary.
- Creditworthy freelancers in a pinch should consider a bank personal loan or, if you’re a property owner, a secured line of credit, are other funding sources.
- Ask Bristol County Savings Bank about a business loan secured by the federal Small Business Administration, or other financing for which you be eligible.
- Your local community-support chest or regional SBA office, too, can point you to grants or other low-cost sources of operating capital.
Don’t put all your revenue eggs in one basket
Steady income is just as reliable and comforting in freelancing as it was earning a regular paycheck. Bear that in mind as you solicit customers, many of them may compete in the same industries. That can be detrimental if one or more industry sectors slump.If appropriate for your business, consider clients who serve a wide swath of economic sectors, particularly those that prosper in good financial times and bad including but not limited to:
- Healthcare
- Legal, accounting, or other professional services
- Restaurants and other foodservices clients
- Retail clothing
- Furniture stores
- Automobile dealers
Remember your tax bills – both state and federal
When you are a freelancer, taxes can get complicated quickly. Keep track of all Form 1099s from vendors detailing fees or other income you collected from them during the tax year. Check with the Internal Revenue Service and Massachusetts or Rhode Island income-tax agency to see whether they require you to make quarterly payments to satisfy income-withholding requirements.Don’t shortchange yourself
Ensure your fees for services are sufficient to cover your related professional and personal overhead while allowing you to remain competitive. Your personal/ professional budget will be useful for that.Also remember that a growing number of states impose sales taxes for certain personal and professional billings, such as pet groomers and phone-answering, janitorial and extermination services. Do your homework, especially if your freelance services extend into multiple states.