For a variety of reasons, more and more traditionally employed people are moving to freelance and contract gigs. In other industries, some are doing so out of necessity—company downsizing and layoffs, especially in brick-and-mortar businesses, have become more prevalent in the digital age. For stylists, the pandemic accelerated that effect as some salons shut their doors during COVID lockdowns. But some workers are doing so out of choice. As the pandemic began to ease, people were quitting their jobs at a record rate—nearly 4 million in April 2021 alone. Others, having become accustomed to the greater freedom offered by working remotely, said they’d look elsewhere if they weren’t allowed to continue working from home. But freelancing has its drawbacks, too. There are no automatic income tax deductions, so you have to keep closer track of your income and file quarterly taxes. And your income is more likely to fluctuate from month to month, so you’ll have to work harder at budgeting. Managing your money doesn’t have to be a nightmare, though, if you follow a few simple principles. Set a good baseline It can be tempting to use your best-income month as your baseline. If you got into freelancing because of the “free” part (freedom), you might want to think you’re earning more money than you are. Since income can fluctuate, it’s better to average out your income for the year, taking into account seasonal changes, and use that as your starting point. You may even want to drop below that number a bit to be conservative. Set aside the extra money you make during more profitable months to cover your expenses during leaner times. You’ll have to continually readjust, too, based on new data. If your business grows, this means you’ll have more money to spend or invest back into your business. Keep your finances separate Create separate accounts for your business and personal finances. This will make it easier to track what you’re keeping for yourself and what you’re investing and reinvesting into the business. Of course, it will require two separate budgets. Fortunately, there are some good budgeting apps that work well for freelancers. There are also apps like Square, Trim, and CountAbout, that can facilitate bill payment for you and your clients. One option worth looking at is registering your business as a legal entity. But weigh the pros and cons. This will cost you extra money at the front end for filing fees and paperwork, but it will also provide you with credibility. If you register as a sole proprietor, you’ll receive all the profits, but creditors will be able to go after your personal property to satisfy business debts. Bolster your credit standing Good credit is always desirable, but even more so when you’re running a small business. You’ll need a good credit rating to qualify for loans you may need to make investments as your business grows. You don’t have to go into debt to build good credit. One strategy you can […]
