The Freelancer's Definitive Guide to Personal Finances

The decision to go freelance is a big step, and handled well can lead to some huge benefits in both your work and in your wider life. There are many elements that one must take into consideration when working freelance, and one, if not the most important aspects is your personal finance. Despite being gifted in your chosen field, you may not be a natural when it comes to managing your accounts, invoicing, taxation and all the other money worries that come with being self-employed. This post outlines the issues to keep in mind for freelance finances, some simple steps and useful tools that will help you on the way to self-employed success.

Planning Ahead

Time is one of the freelancer?s most precious assets, so creating an accurate schedule for upcoming work is an essential consideration for planning your work, and subsequently your income. Your schedule should be broken down into days, weeks, months and even years if you?re brave or lucky enough to be able to make long term work commitments. When drawing up future plans you should also take into account how much time will be actual ?work time?, leaving aside enough time for admin and, of course, leisure ? the reward of the freelancing life. Once you have established the framework of you future schedule you are certain of how much time you can dedicate to a project, keep track of time and provide accurate estimates of project delivery. Clear timelines and accurate time-tracking help you meet agreed deadlines, keeping everyone involved up-to-date and happy.

1. Make a clear schedule structure, broken down into year, months, weeks and days, with clearly defined available work time, admin and leisure.
2. When receiving projects, plan exactly how much time can be dedicated within the schedule.
3. Establish project timelines, thus providing realistic delivery dates.
4. Plan ahead for income and expenses so you don?t run out of cash during a project.
5. Use time-tracking software to make the most of your time and money, juggle projects, plan ahead, meet deadlines and manage finances.

Our recommended planning tools: Harvest (tracking your time), Basecamp (managing projects), Assembla (tracking bugs and managing code versioning), Google Calendar (calendaring), Doodle (setting up meetings)

Invoicing Your Clients

Managing your invoices correctly keeps you finances up-to-date and, crucially, helps ensure you get paid on time. The simplest ways of invoicing are either sending an invoice at the end of a project or agreeing on invoicing at regular intervals for clients who provide on-going work. The invoice itself should be simple and easy to understand, so the client knows exactly what they are paying for, whom the money is going to and the best form of payment. Keeping track of all your invoices can become a headache when you have multiple clients, projects and timelines, but there are plenty of apps and online resources to organise your invoicing and provide your clients with professional and prompt billing.

1. Send invoices promptly at the end of projects or at agreed regular intervals.
2. Make your invoices clear and easy to understand.
3. Invoices should include the essential information: contact details; description of services/expenses; financial totals; payment details.
   Invoices should be individually numbered for reference and filing purposes. This is important for both parties.
4. Makes sure you have all your invoices filed and backed-up with copies; this is important for future reference, helps clear up any enquiries or disputes between parties, and is essential for end-of-year tax calculations.
5. Make use of applications and online resources to send and manage billing, send professional-looking invoices and ensure that you are promptly paid.

Recommended invoicing tool: FreshBooks

Taking Payment

Making sure you get paid properly and promptly is another essential part of the freelancer?s finances. Your clients are likely to have their own preferred payment methods, but you should also work out what is best for your circumstances. Many companies still go for a straightforward bank transfer, but handing out bank details can be somewhat insecure for online payments in today?s world of fraud and identity theft. If you don?t mind paying their fees, PayPal is a great way to receive and manage secure and fast payments, simplifying the whole process for both parties. Developments in mobile payments, effectively turning your smart phone into a portable card-reader, are transforming face-to-face payments and sales transactions for freelance merchants. There?s no shortage of options, but you?ll probably not mind how you get your payment, as long as you get it!

1. Agree with your clients on the best payment method to suit both your requirements.
2. Protect yourself with secure payments by using PayPal to receive and make safe, fast transactions.
3. Make use of mobile payments for face-to-face card payments and freelance merchant sales.

Recommended payment tools: PayPal (online payments), iCCPay or Square (credit card payments via your iPhone), wire transfers

Preparing Your Taxes

Completing tax returns is often one of the least appealing aspects of freelance finances, but if you keep your records in order and file returns complete and on time there?s really no need for them to become a major headache. Ensuring all you invoicing, expenses and bank account details are correctly filed and readily available makes the process easy enough.

If you work alone, producing piecework and projects for a handful of clients, then the annual tax return should be a relatively simple exercise. Tax authorities provide support and advice for self-employed freelancers and you can usually supply a return with a straightforward online form.

If, however, you have a bigger operation, with multiple clients, big expenses and out-sourced work, your tax return will become more of a complex affair, and it could be time to get some help. There is a wide choice of software available to help organise taxation, and online forums and resources can provide a wealth of helpful advice. It may also be necessary to employ the services of a professional accountant, someone trustworthy and reliable who you feel comfortable handling your finances. Finding the right accountant could be as simple as asking around amongst fellow freelancers, but make sure the person or company you employ has the correct accreditation and skills for the job.

Once your tax return is successfully sent, the next step is to pay the required amount. Throughout the financial year you should remain aware of roughly how much tax you are likely to pay, and try to put the money aside from each project to avoid any nasty surprises when the time comes to make the payment. Tax authorities often reward early payment (or penalise late payments), so pay on time to maximise your freelance business profits.

Finally, depending on the size of your income and the nature of your business it may be possible that you are entitled to tax credits, other benefits and breaks, so ask your tax authority or an independent citizens advice source for information on any savings you can make on you tax returns.

1. Keep all financial record up-to-date, accurately filed and ready to complete your tax return.
2. Keep accurate records of all invoices, expenses, receipts and banking information.
3. Make use of online resources and the best taxation software packages such as TurboTax.
4. If necessary, find a suitable accountant to help you complete your return.
5. Make sure you have enough money set aside for when the time comes to pay your taxes.
6. Pay early to make the biggest savings.
7. Research any tax credits, non-taxable income, tax breaks and other benefits you may be entitled to.

Recommended tax preparation tools: TurboTax (ties in with QuickBooks), Xero (easy cloud-based accountancy and tax preparation app)

Saving for a Rainy Day

Saving and budgeting may not seem like great fun, but can become the most rewarding parts of freelance finances. Managing you accounts, keeping an eye on all your income and outgoings, helps work out exactly what you need to spend each month and how much you hopefully, will have to spare. This money can be put aside for bigger out goings such as rent and tax, or for other bigger life expenses such a new car or towards a mortgage. Forecast ahead your income and expenditure for the upcoming weeks, months or even years, and you can put aside a pot of cash for a rainy day and treat yourself in any way you see fit. After all, the choice to go freelance is taken in order to take control of your working life, your finances and to enjoy the rewards. Once again, there are plenty of great online resources, apps and accounting software packages to help you plan your finances and save money for the future.

1. Keep accurate records and track accounts, income and expenditure.
2. Forecast short and long-term expenditure to estimate future savings.
3. Use software packages such as inDinero to monitor the financial health of your accounts and predict future savings.
4. Use savings for life?s bigger expenses or simply treat yourself to the rewards of your hard work.

Recommended tool: inDinero (designed to manage business cash flow), Mint (consumer orientated money management)

Getting New Clients

You can be the very best in your field of expertise, but if you have no customers you?ll get no work. Building and maintaining a wide variety of clients maximises the possibilities of winning new contracts and increasing your income.

A website and blog is one of the finest means of advertising your work and your skills. By preparing a showcase of your best output and abilities, you have an online portfolio to advertise to any potential client. WordPress is a great platform for building websites and blogging niches, and you can easily customise WordPress to suit any product of service.

Both real-world and online networking are great ways of spreading the word about your work, building up a web of contacts and clients. Ask around with friends, past colleagues and current clients for new work contacts and potential jobs; Facebook and Twitter et al take care of your online networking.

As your network of customers and work-related contacts grows it will naturally lead to new work and further customers. This makes sure you don?t over-rely on particular clients and can pick and choose the contracts you want to chase.

1. Create a website and blog to showcase your skills and share new developments.
2. Make use of social networking sites.
3. Use contacts from your friends, past colleagues and current clients.
4. Make sure you have plenty of client contacts in your address book.

Recommended tools: WordPress (websites/blogging), Facebook and Twitter (social networking)

Ditching Costly Clients

Once you have built up a good list of clients, it?s time to analyse where your most rewarding jobs are coming from and where you are wasting time and therefore money. Many companies operate on the Pareto principle: that 80% of income comes from around 20% of clients. You should consider your own situation with a similar ratio in mind. If you find that certain clients are draining your time with difficult, protracted jobs or generally wasting your time for little reward then it?s time to ditch them.

The clients who provide you with plenty of work and productive contracts should be rewarded with your loyalty and time, even providing free-of-charge help if you feel it?s appropriate. The reverse of this is that customers who are eating into your valuable time and damaging your finances should be fired. Life is too short and your resources too precious to be wasted on bad business.

If you feel that your relationship with a client is no longer beneficial and it?s time to ditch them, it?s best for all concerned to do it in the most polite yet conclusive manner, maintaining your professional image and removing any ambiguity from further dealings.

1. Analyse where you are expending your work time and effort; work out if you?re wasting time on an unproductive client.
2. Reward productive clients with loyalty and time; ditch wasteful clients because life?s too short.
3. When the time comes, cease business with bad clients politely and conclusively.

Conclusion

As we have seen, when it comes to managing your freelance finances there are a number of key issues: planning and tracking your time; invoicing; taking payments; preparing your taxes; saving money; building your client base; ditching costly clients and rewarding your valued customers. Each of these areas can, of course, be explored in much greater depth but it is hoped this outline offers some useful advice and tools to get you started. Your finances shouldn?t be a headache as long as you keep on top of them and stay organised. The important thing to remember is that freelancing should be a financially rewarding lifestyle choice, and most of all ? fun!

Got Any Freelance Money Tips?

Let your fellow freelancers know how you manage your finances in the comments.

Source: http://www.creditcardcompare.com.au/blog/the-freelancers-guide-to-personal-finances.php

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