Freelancing is indeed a rewarding career with numerous benefits and perks. You don’t have to rely on a desk job with fixed working hours and space. Also, the potential earning is limitless if you have the right skills.
However, the initial days as a freelancer are not easy for the finances. It may take more than you might have expected to secure the first client. Or, you might face financial troubles while the payment is not expected soon.
Tips to Manage Finances During the Early Days of Freelancing
You should remain proactive to manage the financial troubles during the early stages of your career. A single disastrous decision can make you return to the job. Here are some tips for managing finances during the early days as a freelancer –
1. Budgeting with No Fixed Income
People face trouble while trying to create and stick to a budget with a fixed income. Imagine the troubles trying to budget for fluctuating income as a freelancer. You will struggle to create a roadmap for financial goals and retain the same lifestyle.
Therefore, it will take some time and failures to understand the concept of budgeting with fluctuating income. More importantly, the budget should focus on your expenses instead of income. Create cushion money to compensate for the fluctuating income during the slow months.
You should save enough money to manage the expenses for at least six months during the start of your freelance career. Put financial goals such as a car or expensive gadgets on hold during the tough months. You can always contact a direct lender to take out car loans for bad credit if you need a vehicle with a low down payment.
2. Constant Ups and Down
The fluctuating income is a common drawback of working as a freelancer. You are not working with an employer to expect a paycheque every month. The clients may not offer more work after the completion of the project.
Moreover, it will take some time to secure another client to compensate for the lost income. Some freelancers find specific seasons challenging to find clients, while others find it impossible to manage the rush. Therefore, it is impossible to find the true income to create a healthy lifestyle during the initial days.
Instead of monthly income, you should focus on a more extended period, such as a year, to measure the true income. It will help keep the motivation during the slow months for your income. At the same time, you will control the splurges during the favourable months for your finances.
3. Tax Calculation
You need to manage the taxes while you work as a freelancer. It gets a little tricky to keep track of the cash flow with the personal and business expenses. Businesses take care of the taxes for the revenue before handing the paycheque to you.
You should put aside at least 30% of your income for taxes. The assessment should take a couple of hours of serious tracking and enlisting expenses and income. Do not wait for the due date to take out money from your account.
4. Financial Goals
You should have financial goals to solidify the future from unexpected events. Also, it will help focus on the savings to reduce unnecessary costs. However, saving money for goals is not easy with a varying income.
You should set aside a percentage of your income for financial goals each month. It will help manage the expenses during the tough months while compensating the other months. Also, create a priority list of financial goals to avoid unnecessary stress on finances while managing the essential expenses.
As mentioned above, you can take bad credit car finance from direct lenders even with a small down payment. On the other hand, a house or capital for the growth of your freelance career is extremely important.
5. Retirement Funds
Retirement funds should remain on top of your priority list from the start of your career. There is no income to rely on after retirement. You will depend on limited savings to live a comfortable life.
People avoid saving money for retirement until the later stage of their career. On the contrary, you create a challenging situation because a sudden financial crisis will create problems for your desired savings goals. You will have time to regain control if you start early.
6. Short- and Long-Term Savings
The unpredictable nature of your income increases the importance of savings. You should not leave your job before saving enough to manage expenses for 3-6 months. Apart from this, you need to focus on short-term and long-term savings.
The short-term savings will take care of the sudden expenses during a project. It can range from buying a subscription to pay for the repair of your system. Moreover, you will have money to manage your expenses while living on a tight budget.
While the long-term goals will help during an extended duration of dried-up finances. You should have enough money in your savings account to sail through emergencies where a significant fund is required in an instant. Thus, it is important to save while keeping in mind the short- and long-term goals.
How to Manage the Sudden Expenses as a Freelancer
As discussed above, you must have enough money saved in your accounts to manage finances during tough times. However, it is okay to lose control of the expenses with no savings to rely on. You need a line of credit to get funds without much delay for these situations.
Credit cards are good until the payment is assured before the next due date. Otherwise, it cost an exorbitant interest rate for the instalments. Direct lenders are a better alternative to get instant funds at affordable interest rates for a lengthier duration.
To sum up, it is incredibly difficult to manage the finances during the initial days of your freelancing career. You should have enough savings to rely on during tough times. Otherwise, the risk of a debt situation or return to a horrible previous job.