Young Upstarts

All about entrepreneurship, intrapreneurship, ideas, innovation, and small business.

Managing Finances When Freelancing

As a freelancer, you understand and enjoy the immense freedom that comes with being your own boss. At the same time, just as even the most powerful CEOs are still under the authority of shareholders, as a freelancer, you’re still under the authority of people and companies to whom you have a financial obligation.

Missing this fact can result in financial ruin for you and your family, so it’s important to understand the unique financial implications of being a freelancer in this modern-day gig economy we find ourselves living in.

Know Who to Pay, What to Pay, and When to Pay.

When you receive a pay stub at a typical job, the sight of the difference between your “gross” and “net” pay can make your stomach churn. Though it’s difficult to see the money you’ve earned evaporate before it ever hits your bank account, it’s nice to have these things handled by someone else. After all, everyone has to pay taxes, so at least it’s less of a hassle when working an ordinary job.

Since freelancers are expected to file their own taxes and send in quarterly payments to the IRS or comparable collection agency, self-employment tax structures are a bit more complicated. Because this often means accounting for deductions and write-offs to reduce the tax burden, many freelancers turn to tax management services for help. If freelancers decide to do their own taxes, it’s important to note the need to be honest and accurate about deductions. The relative ease in which self-employed people can claim deductions means tax collection agencies examine their returns much more closely than of those earning income through an employer.

Ride the Wave.

Though a typical office job can seem oppressive, especially after tasting the freedom of being self-employed, one of the comfortable aspects of working for someone else is the assurance of a regular paycheck. When you’re freelancing, no amount of money is ever totally assured to you. This financial uncertainty requires some unique budgeting that you wouldn’t have to practice if you were working for “the man.”

One big component of this is being able to effectively “ride the wave” of ups and downs in your income. Working a big project for an important client can feel great, until you, in your excitement, blow all your money on an unnecessary purchase and don’t have any left when you don’t have any clients for a while. The good times, then, while certainly worth celebrating, are ultimately times to save as much money as possible for unexpected costs and for regular expenses during lean times.

Trust Carefully.

Unlike in a typical job, where you are paid whether or not the company made any money that week, as a freelancer, it’s entirely up to you to secure payment from your clients. That’s why it’s so important to “trust carefully” to ensure you’re not being taken advantage of by a client. The last thing you want to happen is to end up with a bunch of wasted time and effort by finishing a project you don’t get paid for.

To be sure, it’s important to make it as easy as possible for your clients to pay you, potentially offering a variety of different payment options to choose from. That ease of payment, however, still requires you to put protections in place to ensure that you don’t hand over your finished product until your client has paid in full. Though it may be costly, this could be where you’d want to get a lawyer involved, to draw up contracts that will hold water in the event you have to take a client to court.

Enjoy It.

Though the world of finances for freelancers can be difficult to navigate at times, the fact is that being your own boss is still one of the greatest opportunities in the world. Enjoy this freedom every day and make the most of it, taking time out every now and then to spend time with family and friends that you wouldn’t have been able to enjoy otherwise. This enjoyment will help motivate you even more as you seek continued success in the world of freelancing.

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Young Upstarts is a business and technology blog that champions new ideas, innovation and entrepreneurship. It focuses on highlighting young people and small businesses, celebrating their vision and role in changing the world with their ideas, products and services.

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