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If you ask a freelancer what their least favorite thing about freelancing is, it’s a ten-to-one chance the answer will have something to do with money. Whether it’s budgeting, saving, or clients that just don’t pay in a reliable manner, finances can be fickle when you’re a freelancer. But there are specific things you can do to make your money management much easier. First up, you'll want to avoid these mistakes:
The biggest budgeting mistakes that freelancers make:
All the lifehacks and apps in the world won't make a difference if your financial habits are awful. I asked Jaime Campbell, owner at Tier One Services and fellow Domino/financial whiz, what mistakes she sees freelancers making over and over again, and this is what she had to say:
Mistake #1: Not laying a foundation for the future
Just because you love your work doesn’t mean retirement isn’t in your future. Create a SEP, put funds in an IRA, set aside profits for savings, and, of course, create a freelance business that's saleable.
Mistake #2: Commingling personal and business bank accounts
It’s important to create a separate bank account for your freelance business – the same goes for credit cards.
Mistake #3: Making decisions based on the bank balance
Keeping track of cash inflows and outflows is a far wiser way to keep overspending in check.
Mistake #4: Keeping receipts
Set up an accounting system in QuickBooks or Xero, and then connect them to your bank account so you don't spend a lot of time doing bookkeeping
Mistake #5: Not creating a strategic financial plan
Earning and spending according to what seems logical or interesting for the moment can be tempting, but it’s not sustainable. Your financial plan doesn't have to consist of anything more than a pie chart showing the best ways to reinvest earnings in the business. Overtime, use the chart to compare your actual spending to the plan on an ongoing basis to make sure you're maximizing the dollars that you get back in from every dollar that you spend.
Mistake #6: Thinking that bookkeeping is just for taxes
Bookkeeping means being aware of the financial trends in your industry as well as doing 30-day and 6-month cash flow forecasting. Great bookkeeping includes tags for customers, referral sources, revenue streams, and expenses as well as trends on receivables and payables.
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Apps to help wrangle your finances:
Digit is one of the new wave of apps that is entirely SMS based. The idea is simple: you create a savings account and communicate with the app via text message. It checks in every morning with an update on your bank’s status (which is something I wish my bank app did, but no such luck), and saves money automatically.
This works really well for me because if the money in my savings account is too easily accessible, I’ll just wind up switching it back into my checking. Digit keeps it far enough away from me that I forget it’s there, but I still have access to the money when I do need it.
Savings are important for anyone to have, but they’re extra important for us freelancers, who are prone to unexpected business expenses (or unexpected cash droughts) — so anything that makes saving easier is a win in my book.
Alternatively, Qapital is an iOS app similar to Digit that gives you more flexible options on how you save. You can set it to round up to the nearest dollar (or two, or five) every time you make a purchase and funnel that extra money to your savings account, or save five dollars a week, or so on.
You can save towards specific goals — new MacBook for work, rainy day fund, you name it. They've even recently added a rule to make life easier for freelancers on tax day, by automatically saving a percentage of deposits.
Finally, we all have that one client who’s not super reliable when it comes to their turnaround time. Sometimes they pay right away, sometimes it takes a few days, sometimes they “forget” about the invoice and don’t pay for a few weeks. For situations like that or any other payment gap you wind up with, Fundbox can help you out.
The idea is that you hook it up to your invoicing tool of choice (they support Freshbooks, Xero, Harvest, Quickbooks, and Wave) and it tells you what your current available amount of money is. You choose an invoice to clear and receive the money as a direct deposit within 1-2 business days. Then you pay Fundbox back over 12 weeks or so, or quicker if you want to (there’s no penalties for early repayment).
It’s not necessarily something to make a habit, as their fees, though reasonable, can cut into your profit margins, but it’s a great option to have in a pinch.
Apps that get you paid (literally)
When it comes to how you get paid, you've got a few options. Paypal is a popular choice, and smaller businesses often use it to pay contractors and freelancers, but many people prefer to pay via debit or credit card without going through Paypal.
I've also heard numerous horror stories about Paypal inexplicably freezing accounts and holding money for undetermined periods of time, or clients filing a dispute after the project is done and Paypal siding with the client even with a contract, etc., in place. I've never had one of those experiences myself but it's a good reason to not put all of your eggs in Paypal's basket.
Stripe is a payment processor that integrates with many other payment tools (including Harvest and Freshbooks) to make it easier for your clients to pay via credit/debit card. Stripe's Relay tool also lets you sell your services on other platforms (namely, Twitter). There's planned integrations for Pinterest, as well.
Square offers several different payment solutions. There's the Square card readers, which might come in handy if you occasionally do on-site freelancing. There's also Square Cash, which gives you a link where people can quickly and easily pay you via debit/credit card. (If you want to see an example of what that looks like, my Square Cash page is here - the mobile experience of paying is especially great.)
When it comes to a breakdown of fees, Stripe and Paypal will both cost you 2.9% + .30 per sale. Square is 2.75% for swiped transactions, but if you key in the card number it's 3.5% + .15. Square Cash beats those options, at 1.9% per transaction for business.
Accounting and invoicing apps
There are a lot of options here, and the truth is is that there isn’t a “one size fits all” solution - it just depends on your wants and needs. I use Harvest for time-tracking, invoicing, and expense tracking, and I love it. Others use Freshbooks and are perfectly happy with it. Quickbooks and Xero are two popular options for full-featured bookkeeping - but which one of those you go with really depends on what your accountant uses (if you use one) and which is easier for you to use.
Financial forecasting apps for freelancers
This is fairly uncharted territory at the moment. Financial forecasting apps exist for teams, but for freelancers, there’s really only two names in the game right now: Harpoon and Cushion. They're both pretty new on the scene, only opening up to public users within the last month or two.
Both of these tools do other things aside from financial forecasting. Cushion is more scheduling oriented, functioning as something of a Gantt chart for your freelancing workflow and helping you spot likely delays before they happen.
Harpoon is more explicitly about managing your finances, aiming to help freelancers make better financial decisions and giving you quarter-over-quarter financial reports (among other reporting options). Cushion is $10/month and Harpoon starts at $19/month for a 15-client plan.
- Everything you need to know about freelance rates, pricing, and fees
- Freelance rate calculators can be tricky — a lot of them are wildly oversimplified — but this is the best one I’ve seen so far.
- The Tax Deductions Guide for Freelancers and the Self-Employed
- How to Budget for an Irregular Income
- Freelancers, Here’s How to Budget Your Money (part one in a four part series — links to the other articles are at the top of that article and include tips on taxes, retirement, and more)
Michelle is the Freelancer Mentor at at Domino, which helps you freelance jobs through your friends. When she's not writing for clients, she's listening to podcasts, watching something involving sci-fi or superheroes, or practicing Brazilian jiu-jitsu.