Are you thinking of diving head-first into the world of freelancing? Before you do, you should read these simple money tips for freelancers. These tips will make it a lot easier to handle the financial hurdles that can come with working within the gig economy.
1. Make an Emergency Fund
As a freelancer, you know that you won’t have many of the benefits and protections that come with working at a run-of-the-mill corporate office. You won’t have a 401(k) with matching contributions. You won’t have paid vacation time, parental leave or healthcare benefits. And you certainly won’t have entire departments full of experts that can help you get through work emergencies, like computer breakdowns. You’ll have to deal with those emergencies all on your own.
That’s why you’ll want to make setting up an emergency fund one of your first priorities as a freelancer. An emergency fund can help you get through emergencies that put your work-life at a complete standstill, whether it’s a tech breakdown in the middle of your project or a stalling car when you’re driving to an interview. The collection of savings lets you pay for the emergency right after it happens.
When you first start your emergency fund, your savings will be low. You might not be able to cover an emergency expense with the contents. In that case, you should learn about online borrowing options for times when you don’t have enough savings to cover an emergency. An alternative solution like a personal line of credit could be extremely useful in this situation. Check to see whether you meet all of the qualifications to apply for one in your state.
2. Guarantee Payments in Your Contracts
One of the biggest problems freelancers often face is not getting paid on time. In some terrible cases, they have clients disappear when it comes time to pay up, leaving them with absolutely nothing for their hard work.
The trick for avoiding this type of trouble lies in your freelancer contract. In your freelancer contract, you should set up multiple payment installments instead of a single lump sum. This will mean you get paid little by little until the project is done. If the client doesn’t pay part of the installment, the project is paused until those funds are received. This can keep your client accountable since they will need to pay in order to receive the completed work.
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These are some other contract strategies that can help you get paid:
- Have an initial down payment before you start the project
- Have late fees for missing payment deadlines
- Have kill fees for when clients cancel projects
3. Prepare for Taxes
Freelancers are self-employed individuals, so their tax filing process is a little different. As a freelancer, you’ll be expected to file an annual return and make quarterly payments. A good rule of thumb is to reserve 25-30% of your freelance income in a savings account. This should be enough to help you cover your quarterly payments, as long as you make them on time.
You can learn more about the process at the IRS’s self-employed individual tax center online. You’ll want to get familiar with this resource.
Now you know how to prepare your finances for this big career step. You’re ready to start freelancing!
