Being a successful freelancer really requires the ability to manage money and finances because not only you will have to do your own bookkeeping and record each one of your tasks, you will also need to stay on top of your finances also. Reaching the point where income flow is steady will take a lot of time, in which until then you will need to make a habit to be in control with your money. For that reason, you will also need to set out detailed personal finance goals for yourself aside from setting other goals for your business to develop and thrive. Do whatever it is that you need to do. Whether you are more comfortable with brainstorming with flowcharts or with dot-points, or whether you want to do anything else in planning and setting your targets as an aspiring freelancer. Set realistic and achievable goals, and if you still do not have a clue about what you want to put in your list here are some personal finance goals which are applicable for your finance management as a freelancer:
Continuously Saving Money
It is important to save money mentioning the nature of freelancing job which lacks in stability and predictability. Push yourself to do it, and make it uncomfortable because if you are still comfortable with the amount that you are putting aside for savings chances are you are not saving enough. Set goals to increase your savings rate by a certain amount for every month, and if you cannot do so you may want to review your passive income sources. Having other passive income sources will definitely help in tackling your uncertain freelancing income, in which if you do not know what to do you can sell things that you no longer use or need in order to increase your savings amount. Make sure that your passive income stream is distinguished from your freelance income streams, because you may need to allocate different income streams for different needs. The most preferable option would be to allocate your passive income stream as an emergency savings account whereas your freelance income stream would serve as the source to pay for your daily expenses.
Decrease Expenses And Invest Instead
This is a no-brainer, but actually making a goal to decrease your expenses will actually help significantly because people lose a lot of money in their spending and miscellaneous investments without realizing it. Rather than spending your money into something that does not have a selling value, make sure that you put your money into valuable investments with a low risk at hand. Never be tempted to listen to those investment agents which promise a fast and huge return on certain investment, because you may in reality be walking towards a high-risk investment. Browse through different investment plans and return scenarios to get a clearer idea of what you can obtain. You can read different articles and books on finding low risk high return investments, but be aware that low risk investments usually result in a lower return since you are not exposed to that much of a risk from the beginning.
Save For Particular Purposes
Aside from saving money regularly and start decreasing your expenses, you can also list down specific targets which can contribute to your personal finance goals. This includes plans to buy a new house, intentions to pay for your children’s college tuition fees, or lifelong dream of going on a major extravagant vacation in the Bahamas with your loved one. In order to make the goal realistic, put it down in a list along with the estimated amount which you will need as well as the target due date for the amount to be already collected at hand. Consequently, you can calculate how much money you should set aside per month or per week in order to meet that target. If the target due date is scheduled to be several years from the planning, you can also choose to put the money into investment accounts in order to get more interest rather than just leaving it in a regular savings account.
Keep Track Of Targets and Performance
Setting up targets will be useless if you never keep track of how far it is for you to achieve such targets. It is vital to identify a target which keeps you focused, and it is also important to review your current performance against the aforesaid target. You can set up targets which reflect your own achievement; however, you can also set external targets such as your competitor’s achievement or for example the NASDAQ index. In monitoring your target fulfillment and performance it is also important to focus on the scalability of your business as a whole rather than just one-time profit or revenue. Focusing on one-time profit income will be inefficient and unwise. For that reason, by monitoring your current performance as well as incoming opportunities and reflect it with your target’s due date and direction, you will be able to focus more on your businesses profitability in the long run.
Pay Off High-Interest Debt
Ideally, you should deal with any other debts or loans which require you to pay more than 10 percent interest as soon as possible. Different strategies may be applied in paying these loans because if you are not careful it may end up taking all of your money away in such a short while. If you happen to have several different loans or debts at the same time, never pay them all at the same time. What you can do to handle all these loans or debts would be to rank them in accordance with the interest rate that you are paying. If you are not sure about the interest rate of these loans or debts, there is a high chance that you will find them in the lending contract, or else you can always call your provider and have them explain the terms to you. Consequently, start off by paying off the loan which has the highest interest rate and keep on pushing on that one. At the same time, pay the minimum amount on the remaining loans and debts until the first highest one is settled. Once you have finished with the first one, move on to the next one on the list and continue to move down through all of the listed loans or debts until you got every single one of it paid off.
Arrange A Retirement Plan
If you do not realize it yet, retirement will be really costly even though it is still a long way away if you are still in your twenties. Building up an emergency fund which covers six month worth of your living expenses is difficult especially due to the nature of your freelancing job, now imagine that you have to plan for at least ten to twenty years worth of living expenses in which you will not be able to work much more and as a result the responsibility lies in the younger you. On a similar note, old age most likely comes with a lot of diseases and health problems which will be very costly but necessary at the same time. So as a result, you would want your retirement period to be happy and relaxed without all the economic hardships which you may have suffered when you were younger, and therefore you really need to plan it well.
Open special accounts such as the Individual Retirement Arrangement if you live in the United States to really prepare for your retirement. In a lot of countries, these special accounts are also featured with tax breaks as well as other financial incentives and as a result you will be able to feel its benefits in the long run.
Minimize Tax Payment
You need to set a goal to minimize tax payment if what you are paying for taxes is roughly the same as what you are saving annually, if not more. It is not easy to minimize your tax payment; it definitely requires some effort and time. There are a lot of options which you can choose in order to minimize your tax payment as a freelancer but different options may be available in different countries. For instance, if you happen to reside in the United States, you can obtain the maximum amount of your 401K or an Individual Retirement Account and put as much money as possible into it to get a tax cut. You can also opt to make use of the mortgage interest shield. Furthermore, since United States consists of 50 different states, you may also consider to move to a tax friendlier state if there is really no other way out. Another method would be to take advantage of the tax incentives, in which the applicable example would be United Kingdom’s Individual Savings Account which allow you to save a huge sum of money by having a year completely free of tax. Learn more about different tax payment systems in your country, and minimize them as much as you can.