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If you’re just starting out as a freelancer, there are a few things you can do that will make your freelance finances a lot simpler and therefore make your life a lot less stressful.
Keep Meticulous Records
Keep track of every cent you earn from your writing, and every cent you spend on writing related expenses, including (but not limited to) software, hardware, books and ebooks, courses, web hosting and office supplies.
If you contract out services such as editing or web design, they are business expenses. If you pay someone to format an ebook or design a graphic, those are business expenses too. If you pay your teenager to help manage your social media or design a blog header, those payments are business expenses as well.
Depending on where you live and your overall tax situation you can probably write most of these expenses off for tax purposes. Plus keeping track of them is key to monitoring what is probably the most important key metric in your freelance business — profit.
I use QuickBooks to keep track of business income and expenses, but there are other software options available. Tracking everything with one efficient system is the key here.
Know What Rate You’re Working For
It’s easy to think you’re earning good money in your freelance business, then realize that’s only because you’re working 80-hour weeks. It can be helpful to have an idea of the hourly rate you’re earning for each project.
Say you’re a freelance writer. To keep the math simple if you get paid $50 for an article and it takes you an hour to write, you’re earning $50 an hour. If you get $20 for an article that requires more research and takes 2 hours to write, you’re earning $10 an hour.
You don’t need to be a financial expert to work out which one of these scenarios is more desirable. You do need a bit of experience as a freelancer before you can accurately estimate how long each piece of work that comes in will take you.
Of course, it’s not that simple. Many freelancers earn residual income from things such as royalties, product sales, and revenue from other, sometimes passive, income sources. But it still helps to know what your hourly rate is likely to be whenever you take on a new brief or client.
Be Aware That A Lot of Your Time Isn’t Billable
Having an idea of your hourly rates is useful, but this only applies when you’re directly trading your time for dollars. As a freelance writer, for example, you have to research markets, pitch new clients, write query letters, keep records, create invoices, market your books, ebooks, services and products, and perhaps maintain your website and manage your social media and other online platforms.
Some of these things are more fun than others. None of them are things you get paid to do. Factor everything in. If you spend 40 hours a week working, but 10 of those on things you don’t get paid for, you need to adjust your goals to take this into account.
Learn How to Create an Invoice
Seriously, it’s not that hard. You can Google it. Please don’t do what one freelancer did to a friend of mine and ask your client how to do it. This doesn’t exactly scream ‘experienced and professional’.
Have a system for invoicing, depending on how you get paid. Payment platforms such as Stripe and PayPal have a built-in invoicing system that really makes life simple.
Develop an Efficient Filing System
This will probably be electronic, rather than physical, but either way, it should be carefully organized. You need to be able to find invoices, contracts, receipts and all other writing related financial information easily.
It may not seem important when you have one contract for regular work and one invoice a month to send out, but by the time you get really busy, you won’t want to have to take time out to devise a workable filing system.
Pay Your Taxes
The taxes you’ll need to pay as a freelancer will depend on national and regional tax laws in your place of residence, but unless you’re living in a tax haven (and maybe even then) you’ll need to file your taxes every year.
If you’re working as a freelancer and making a profit, you need to find out what your tax liability is and what deadlines you need to meet in terms of getting that tax paid. If you’re making a loss, you’ll also want to see if you can offset that against other tax owed. And if you only pay taxes once a year, as in many countries, you probably need to know in advance what your tax bill might be so you can set that money aside.
Keep your freelance finances organized from the beginning, and you’ll have far fewer headaches along the way. And if you don’t have the first idea what you’re doing? Definitely have a chat with a financial advisor, preferably one who specializes in helping freelancers.
Karen Banes is a freelance writer specializing in entrepreneurship, parenting and lifestyle. She writes articles, website content, ebooks and the occasional award winning short story. Her work has appeared in a range of publications both online and off, including The Washington Post, Life Info Magazine, Transitions Abroad, Brave New Traveler, Natural Parenting Group, and Copia Magazine. Learn More About Karen
To make Wealthtender free for readers, we earn money from advertisers, including financial professionals and firms that pay to be featured. This creates a conflict of interest when we favor their promotion over others. Read our editorial policy and terms of service to learn more. Wealthtender is not a client of these financial services providers.
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