Freelancing vs office: the eternal battle!

As you know already, freelancing can be the ideal form of work for those who like being more flexible as per their working hours. It has many supporters all over the world and gained even more, especially in the post-COVID era.

Freelancing is a very tempting option for many of us as it offers a unique and flexible career path since one can work on a variety of projects and be their own boss. However, freelancing is not for everyone; many prefer going to the office and having a normal working routine.

Many consider freelancing as an easy path to follow; they believe that freelancers do not work as much as people who go to the office do, but this theory has been shattered since freelancers end up working more hours because they have this flexibility of time.

In general, however, freelancing offers a large amount of freedom for several reasons.

That said, while being your own boss is nice to the ears, in reality, freelancers have to deal with many other tasks apart from their actual job, and this freedom comes with the responsibility of managing finances effectively in order to not end up in financial chaos. With a view to achieving and ensuring financial stability and success, freelancers or wannabe freelancers must take into consideration a lot of financial factors, such as income instabilities, taxes, and budgeting, to guarantee that they are actually making money.

Taking control of your finances as soon as you start working as a freelancer is as important as finding customers to support this specific lifestyle. For this reason, organization and coordination, along with the following tips, can help significantly in actually maintaining your business and being able to make ends meet.

Income and Expense Tracking

The first and most important step as a freelancer is to manage and track your income and expenses. How? Check the following tips that will guide you through step-by-step on how to keep an effective tracking record.

Establish a Dedicated Business Account

The first thing you should do is to open a separate bank account exclusively for your freelance income and expenses. This way, it will be much easier to track your business finances and keep your personal funds separate.

Record All Income

Never neglect the power of keeping detailed records of all payments received for your freelance work. There are several extremely useful apps and digital tools out there where you can track the date, client, and amount for each payment. In case you don’t want to extra-complicate your life with a lot of tools, a well-organized spreadsheet will do just fine. Don’t forget to update it regularly!

Track Your Expenses

As you do with your income, the same applies to your expenses. Record all business-related expenses, including office supplies, equipment, software subscriptions, and travel costs. Apart from gaining a full overview of what is happening with your budget, these expenses can be deductible from your taxes, thus, more money for you!

Regularly Review Your Finances

Set aside time each month to review your income and expenses. This helps you identify patterns and make informed financial decisions. You can book a time on your own calendar where you will dedicate it only to updating and reviewing your finances. This way, when the time to do your taxes comes, it will not be time and effort-consuming.

Budgeting

Freelancers are a small business themselves. For this reason, you should always keep in mind that an effective budgeting strategy for your freelance business helps you predict and manage expenses and organize your finances better.

Create a Budget

Set a monthly budget that recaps your expected income and expenses. Freelancing is not as stable as having a monthly salary, but usually, there is a more stable clientele you can count on your estimations. Allocate funds for essentials like rent, utilities, and groceries, as well as business-related costs.

Build an Emergency Fund

As a freelancer, income can be irregular, and payments can also trick you since not anyone is as punctual as we would wish. For this reason, creating an emergency fund to cover at least three to six months' worth of living expenses will provide you with a financial safety net in case of unexpected circumstances.

Taxes

Since you are the boss of yourself, and your freelance business is out and running, apart from the budgeting and tracking, you need to take care of your taxes. Taxes can be a very complicated matter if you are not properly organized. Therefore, always keep in mind that in order to actually calculate your net income, taxes should be excluded.

Quarterly Estimated Taxes

Depending on your country’s taxation, a good base would be to know that freelancers are typically responsible for paying quarterly estimated taxes. Always calculate your tax liability when you receive payments and set aside the relevant portion for taxes regularly. Be consistent in keeping your taxes in order; the more organized you are, the more you will have a proper picture of your finances.

Tax Deductions

Tax deductions apply to every business, this it’s also available to freelancers. Tax deductions can occur from home office expenses, health insurance premiums, and business-related travel. For instance, if you need to buy some new equipment or you are traveling to participate in a business conference, you can earn a tax deduction from that. For this reason, keep thorough and detailed records to maximize deductions.

Invoicing and Payment Policies

Set Clear Payment Terms

Communicate clearly your payment terms to your clients. Specify the payment schedule, method, and any late fees or penalties for overdue payments in your contracts. Sometimes, in order to get a project, we tend to neglect our payment terms, which can lead to a large amount of due invoices and many hours spent trying to claim our money. Avoid such incidents by being crystal clear on how payments are made.

Use Professional Invoicing

Use professional invoicing software or templates to send invoices to clients promptly. Ensure that your invoices are clear and include all necessary details. There are several apps and software that can do the job, plus you have everything organized, and it helps you track your income and expenses more easily.

Diversify Income Streams

It’s common for freelancers to work for long periods of time with one major client and neglect expanding their clientele since they are satisfied with the amount of income they earn. This tactic may seem less complicated and more efficient, but in the long run, it may prove a bit risky. For this reason:

Explore Multiple Clients

As we mentioned, relying on a single client can be risky. You never know what the future holds, whether this client will be on the market forever or whether they will keep being okay with the collaboration. Expand to other solutions and diversify your client base to reduce income instabilities.

Offer Additional Services

Expanding your skill set or offering complementary services to attract new clients and generate additional income is a good idea. In general, the needs of every business change over time, so it’s important to stay in the loop for your industry’s trends and news and be prepared to offer those additional services. People usually tend to create relationships with their partners so if you can provide them with a service that will not require them to search for another vendor, they will probably stick with you.

Read more: Freelancers: The ultimate guide to survive during summer