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The popularity of freelancing has skyrocketed. But it’s not always easy — especially in the beginning. You how have a new financial situation and no guaranteed income to count on every month. That means you’re going to have to learn how to budget for the unknown, and learn fast.
Avoid living paycheck to paycheck and burning through your funds and motivation with a few sensible moves. Not only will these assist you in the beginning of your self-employed career, but they will prove valuable throughout.
- Create a Separate Bank Account
- Take Time for the Taxman
- Categorize Your Bills
- Act-On Accounts Receivable
Create a separate bank account
There’s nothing worse than having to scan through statements to find one small yet important piece of financial business that you need. That can often be the case if you haven’t divided your personal and business funds, so they feed into one account.
By opening a new bank account, you can keep your personal finances and your business dealings separate so there’s never any confusion between the two. When it’s time to do your books, you’ll know where to find the financial information you need.
Even opening up an additional account for emergencies will put your mind at ease. You can’t predict when your car will break down or if the equipment you use for your services will need replacing. While it's certainly tempting to spend this "extra" cash, you’ll appreciate it when life throws an unexpected curveball.
Don't forget the taxman
If you have a savings account or the equivalent, set aside some of your income to avoid nasty surprises at the end of the tax year. This will make it easier to pay off your tax bill when the time comes and leave you under no illusions about how much money you actually have.
Categorize your bills
It’s notoriously difficult to track business expenses down to the very last receipt. However, you can make sure that all of your expenses are kept together and tracked. The easiest ways to do this are by using a business credit card and categorizing your bills by types of expenses to make things simpler.
Examples include any tools you use to help deliver your services. Factor these into your budget for your business expenses. Think of any subscriptions to software you may have, specific equipment you may use, and any travel expenses. Equipment maintenance also counts.
Later, you’ll get more of a feel for your average monthly overhead and setting a budget will be much easier. But it’s wise to collect this financial data over the space of three months or more to get an accurate number.
Cash is king!
Actually, what we mean is that cash flow is king. Most startup businesses that fail do so because they run out of cash and their downfall is often their expenditures. A tax deduction may even be available for fair use of your home as your office.
To make sure you don’t outrun your income, it’s vital to keep a close watch on receivables and act on absent payment accordingly. It’s important to chase those late payers to avoid arrears and interest on an outstanding payments.
Act on accounts receivable
Customers who pay late are the bane of any freelancer’s life. Nonpayment has a devastating impact on your cash flow, and your client relationships in the long run. Pay attention to when payments are due and don’t hesitate to follow up when they’re outstanding.
Digitally keeping track of expenses can help with this. You’ll be able to pull up valuable information in regards to how much you’re owed and who exactly is outstanding on their payment.
Be a boss at budgeting
Freelancing is a big decision that requires a lot of commitment. A budget can be complicated to calculate but it doesn’t have to be daunting or something to dread. If you implement any of these tips, you’ll already be taking a step towards making your business successful.
Tiffany is a digital marketer at EasyBooks. She has a keen interest in SEO and eating chocolate.