What to Know About Freelancing Finances

Welcome to the second installment in our series looking at what all freelancers wished they’d known before they got started. Freelancing is an amazing way to command your own schedule, work with the clients you want, and create financial freedom. Forewarned is forearmed, the saying goes, so we’re happy to share what we’ve learned from our experiences – both good and bad! – to help get you started on your freelancing journey with confidence.

This time we’re taking a look at the perhaps less exciting but absolutely essential aspect of freelancing: Finances. Understanding your rights and responsibilities as a small business owner helps you get ahead of the curve when it comes to sorting your accounts and keeping the books balanced. Plus, you’re now in charge of how much money you have for a rainy day – and for retirement. Remember, always get financial advice from a certified professional! These are some tips to think about as you start building your business.

Taxes are Different for Freelancers

It’s so easy to get caught out when your first tax season rolls around, especially if you’ve not researched what forms you need or what information you require from clients. You may be combining business and personal income, and you may not have set a sufficient amount aside to cover your taxes. You also need to remember that paying your own taxes also includes covering your own social security contributions – which may be higher than those of an employee. Taxes for self-employed folks are usually paid four times a year, and your initial payments will be estimates based on the income you think you’ll receive over the course of your first year in business. Always check with a financial professional what you’ll be expected to pay, how to pay it, and how to plan future tax payments based on your increasing income as your business grows.

Go Beyond Just “Paying Yourself”

Treat yourself like you would a treasured employee. Set aside funds to allow you to enjoy vacation time. Yes, all freelancers need a vacation. Missing out on this leads to burnout and potential health difficulties. On that note, have some money set aside in case you need to take a sick day. Treat your health and wellbeing seriously and ensure that you’re covered in case of emergency.

As a freelancer, you’re creating a business, so research the tax benefits that may bring you and ensure you’re putting money into building a brand and growing your business. Improving your ROI only increases the funds you have available to ensure you can live your life and build your career exactly the way you choose to.

Save for Your Future

Even freelancers retire! And when you choose to retire is, of course, entirely up to you. The important thing is to make sure you’ve saved enough money to enjoy that well-earned rest – or the start of a new adventure. You may have had access to a 401K plan via an employer in the past. Check what you already have saved, and think about taking financial advice for the best, most lucrative yet secure way to continue adding to that pot so that you can retire in comfort when the time comes. You may be advised to put money into a SEP-IRA, which stands for Simplified Employee Pension Individual Retirement Account. A SEP-IRA allows you to contribute prior to deducting taxes, although this tax is deferred until withdrawal – again, take advice from your chosen financial professional as this could impact your choice of account type.

All IRAs put limits on how much you can contribute per year, so start planning early to maximize the amount you can put away for your retirement.

Final Word

Here at Arch Collective, we have all been through the trials and triumphs of becoming a freelancer. We understand that you often need help with marketing, finding your perfect audience, and building a brand that lasts. Book your  15-minute introductory call with our experienced team of freelancers who can guide you through the next steps to working with the right person to get your freelance dreams off the ground.

Learn more about building a brand that resonates with your ideal clients with our exclusive Brand Messaging 101 Course – drive more revenue in as little as 10 days!