Many people turn to freelance work to earn income while enjoying personal independence. If you value controlling your time while you work, maybe you should consider working freelance. Upwork, a freelance job site, released a study in 2018 that showed Americans spent more time freelancing that year than in previous years. Since the start of the COVID-19 pandemic, more people have started working freelance. The reason is to earn money in the middle of the financial instability that the virus brought.
Why Start Freelancing?
Technology literacy is one of the factors that contributed to the rising popularity of freelance work. Working remotely requires a certain degree of technological know-how. It doesn’t only come in handy in the actual use of the internet to find jobs. The majority of work you can do on a freelance site also requires technological savvy.
Preferences in lifestyle also highly influenced the rise of the freelance industry. In the study that Upwork released in 2018, 51 percent of the respondents said they would not take traditional office jobs regardless of the pay. It is the freedom that people afford through freelancing that makes people stay.
When you do freelance work, you are not an employee. The relationship between you and your client is a partnership. You do not get paid to work for them. Instead, you get paid for your ability to help them find a solution to a problem or a gap. Essentially, no hierarchy is present in employer-employee relationships in freelance jobs.
You have the freedom to decline jobs if you think they are not suitable for you or the client is lowballing your rate. You can also accept work arrangements based on your schedule preferences.
Why You Shouldn’t Start Freelancing
Despite all these good things, one thing that stops people from entirely doing freelance work is instability. You will be working on primarily short-term contracts. Once a partnership is over, it is up to you to find another job. If you get unlucky, you can go on for months without work.
Another con is that you don’t enjoy workers’ benefits since technically you are your boss. If you want to try freelancing but what stops you is a financial goal, there are ways you can save money as a freelancer with irregular income.
How to Manage Your Personal Finances as a Freelancer
The boon of freelance jobs is that you get paid at an above-average starting hourly rate, which means you’ll be quickly raking in the bucks. But it’s not as easy as that sounds. You’ll have to pay your taxes and get more training to stay relevant in your field. And that’s only the tip of the iceberg. That said, here are a few ways you can manage your finances as a freelancer:
1. Invest in Your Skills as in a Business
Freelancing is considered a business. And in business, you have to offer something that other businesses don’t have. When you do freelance work, you also have to do market research. Some jobs are too saturated with supply. Rate is low when there are too many similar services. Choose a niche that you think you can do. You don’t have to be good at it in the beginning. Invest some money and time earning certificates and learning the specifics.
Since you are the boss of this business, you have to keep records of your income and do the accounting by yourself.
2. Calculate Your Average Monthly Income
When you start freelancing, open a separate bank account where your earnings will come in. This will help you track how much you make in a month. Monitor your earnings average over a few months.
Once you have the number, decide on the amount of money you can save and invest monthly. Despite having an irregular income, you can opt to automate your savings and investments by knowing your average monthly earnings. You can do this using your online banking’s scheduled payment features.
3. Pay Yourself a Minimum Salary
Calculate all your living necessities in a month. Make sure to deduct that amount from your average monthly income. Consider that as your salary. The rest of your earnings should go to savings and investment. The golden rule in investing is to diversify. So if you already have investments in stocks or foreign exchange, consider other possible streams of passive income.
4. Use High-Interest Digital Banks
Suppose you consider building a business in the future. In that case, you can put your savings toward it in a high-interest digital bank. Just keep saving money until you save enough as an investment to open a grocery store of whatever business you plan to build. Digital banks offer high-interest rates because they have low logistics costs.
5. Know Your Way around Taxes
You need to register your freelance business so you can pay the proper taxes. There are benefits to registering your business. Other benefits include enjoying tax advantages, having protection to cover you from possible lawsuits, and bank account opening purposes.
This is a rather tedious process, but you can get advice from an accountant or a financial advisor to help you understand different options on paying taxes and enjoying tax breaks.
Freelancing might seem straightforward on paper: you do a job, you get paid. However, like any career, freelancing has its ups and downs and you’ll have to manage your finances wisely, down to the last cent. But with these tips, you should have a better idea of having a more fruitful freelancing career.