Unlike regular 9 to 5 job employees, freelancers do not have steady pay check at the end of each month. One of the biggest challenges in freelancing is managing this irregular income.
A personal savings account is absolutely vital to freelancer’s financial survival.In this account, the freelancer should accumulate approximately six months of his/her living expenses.This account should not be touched for any other reason,except when there is not enough money to pay the bills.This is to cover living expenses when there is no work. Ideally a freelancer should have established this account before leaving a steady pay check job well in advance.
This account will make the freelancer feel more comfortable while saying no to the clients,who won’t pay their bills on time, before accepting a project from them. Also if you fall sick or want to attend a training course, you can take off your own time peacefully if such savings are there.
A freelancer need to have a business account as well.This is a separate account other than the emergency living expenses account. This will help you while purchasing materials or supplies, advertising, buying promotional materials. And also while paying into your retirement fund, health insurance fund,taxes fund and emergency fund etc.,Now you should know how much to put in each fund. It is better to mention some percentage for each fund.You may get a check for $50 or $500 but you would still deposite some money into each fund without neglecting any.
It is not a bad idea to put the money allocated to tax fund, insurance fund and retirement fund etc in a short term fixed deposit schemes to earn some bucks as interest amount.
To make sure a consistent income it is always advisable to split your projects into several mile stones and ask the client to pay at completion of each mile stone. For short term projects break the job into 25% blocks and bill for each of them.
Moreover the freelancers are paid by clients in a variety of ways. The more the clients the more diverse their payment channels are.In such cases, it is increasingly difficult to keep track of your finances. To help freelancers to keep track of their finances lot of financial management tools and services are available. Solo, Mint, Manila, Slice, Fresh books etc., are some of the softwares available for freelancer to generate invoices, prepare time sheets,transfer funds, creating expenses report and managing bank accounts, credit card and bills.