The Freelancers Union, an online membership group for freelancers, recently released their 3rd annual Freelancing in America report. It documents the growing ranks of freelancers and their emergence as a powerful force within the U.S. economy. Nearly 55 millions Americans are freelancing now, representing 35% of the U.S. workforce. That’s more than a third, folks!
While the number of freelancers is staggering, it’s even more important to realize that two million of those freelancers started in just the past two years. The majority of the respondents say they started freelancing more by choice than necessity, a significant improvement since the 2014 survey.
According to the survey, two top challenges facing freelancers are unpredictable income and debt. Obviously, these two concerns are related. The bills still need to be paid even when you haven’t received any big checks lately! If you’re struggling to figure out how to get through each month when you have irregular income, here are some tips:
- Keep separate bank accounts for your personal and freelancing funds. While it’s tempting to skip this step, there are several arguments for keeping separate accounts. First of all, it will dramatically simplify your business bookkeeping if all of your business expenses are in one account and all of your personal expenses are not in that account. Furthermore, defending your business deductions in an audit is far simpler when they are not mixed in with personal expenses. Lastly, by moving your personal “pay” to your personal account each month, you will have a clearer picture of how much money you REALLY have to spend on all those cool apps, online courses and extra services.
- Create an emergency fund that will cover six months of your business operating expenses and keep that money in a separate savings account. Don’t have that much cash laying around? Then set aside 20% of your monthly profit each month to build up that emergency stash. Once you have six months’ worth of expenses saved, you can move that 20% to paying off more of your debt.
- Create a savings account for taxes. That annual tax bill from Uncle Sam comes every year whether you’re ready for it or not. Set aside 20% to 30% of your monthly profit into a tax account each month. With these funds, you’ll be ready to make the estimated tax payments that are due each quarter.
- Plan for the worst, hope for the best, and live off of last month’s income. Once you have set aside savings for your emergency fund and your cash for your next estimated tax payment, it’s time to pay yourself! Figure out the minimum amount that you need to earn each month to cover your rent, food and other necessary, personal expenses. Then, be sure to pay yourself each month before those business bills come in. Remember, these are bare necessities. Now, you know you’ll be able to pay stay afloat for another month! Anything that’s left is yours to divide up between “extras” for your business or personal splurges that you’ve been hoping to make.
- Invoice early & often. Don’t put off that crucial last step in each project … invoicing! Invoice at least once each week, more often if possible. Also look into the possibility of accepting payment electronically. The more convenient you make it for you client to pay, the faster you’ll see those payment coming in!
- Use a calendar or bill reminder service. Late fees are the worst and a terrible waste of money! Use Google calendar, Mint.com, or any of the dozens of apps out there to track your bill payment due dates. By paying on time, you will eliminate late fees, improve your credit score, and pay less interest in the process.
These are just a few tips to help you stay the course if you’re joining the growing ranks of freelancers!
Do you have any questions I haven’t’ covered? Leave a comment below to let me know what you think!
Deb Howard Greenleaf, EA, CEO and Principal, of Greenleaf Accounting Services provides virtual accounting and bookkeeping services and specializes in financial management to consultants, coaches, solo professionals, and other small business owners across the US. Deb is an Enrolled Agent (EA)—an IRS-licensed tax professional—and specializes in small businesses and entrepreneurs filing Schedule C or as an LLC. As an Advanced Certified QuickBooks ProAdvisor, Deb spends her day in QuickBooks Online and specializes in providing QBO support.
