Freelancing is a flexible and independent profession that allows you to manage your unstable income and expenses. The most important thing is to learn how to save money as a freelancer and keep your finances moving at all times.
Unlike traditional jobs, freelancers do not have 401(k) contributions or health insurance taken care of by the employer.
Because freelancers more often lead volatile incomes, the urge to save is more important compared to those receiving a regular paycheck.
Alternatively, this means that one month you have more than enough, but the next month it is tight. Setting aside money helps even out these fluctuations and helps you sort out your bills, emergencies, and possible future goals.
How to Save Money as a Freelancer
This doesn’t need to be so complicated for a freelancer. Following are five strategies fitted in the freelance lifestyle that help build a financial foundation worth your bucks.
1. Create an Emergency Fund
One of the major monetary steps freelancers can take is building an emergency fund. You will want to save up to three to six months’ worth of your living expenses.
This may tide you over while bills are paid during your slow periods or in between contracts. The cushion gives you peace of mind to take more calculated risks with your freelance work.
2. Set Aside Money for Taxes
This might overpower a lot of freelancers who tend to forget that they should pay their taxes themselves. Set aside about 25% to 30% of your income for taxes.
That way, by the time tax season ensues, you won’t be scrambling for money. Better still, this should be placed in another savings account so you will not spend it by mistake.
3. Budget for Business Expenses
Many freelancers have some business-related expenses that can be software, office supplies, or advertisements.
For effective saving, you need a budget that separates personal and business expenses.
In this way, it will be easier to trace the expenditures and you won’t overspend on different tools and services that you probably don’t need.
Find a way to scale back on superfluous expenses and optimize your budget to yield maximum savings.
4. Negotiate with Clients
The most critical attribute of freelancing is the negotiation aspect. You can negotiate rates of a higher scale for better payment terms or scope of work to increase your income.
Never be afraid to ask for what you are worth and clearly state your terms. Many a time, clients respect freelancers who know their worth, and a higher rate may mean you save more without needing extra hours.
5. Tap into Freelance-Dedicated Savings Tools
Consider the savings and budgeting apps designed for freelancers, like QuickBooks Self-Employed or Cushion.
Alongside giving you a better grasp of income, expenses, and taxes owed, these services will also give you an idea of where you can save more money.
Some automatically enable you to save money, removing the question of ‘how’ from managing your money.
6. Diversify Your Income Streams
One of the most stable and possibly lucrative strategies of freelancing and saving money is to work your way up toward having multiple streams of income.
This practice may include offering a variety of services, taking on side projects, or even investing in passive sources of income. The more streams you have, the easier it is to maintain consistent savings over a period of time.
7. Keep a Separate Bank Account
They also tend to mix their personal and business finances, worsening the problem in tracking their expenses.
Open a second bank account used solely to deposit your freelance earnings into and pay for business expenses.
This should be a long way toward showing how much you make and how much you spend and will make it easier to save.
8. Plan for Downtime
As a rule, freelancers barely get paid for time off. So, you got to make it up for these breaks.
While on vacation or just time off, you can save up so that when such periods come, you will not experience any kind of financial stress whatsoever. Estimate the time you would take off per year and save that amount.
9. Take Advantage of Tax Deductions
Being a freelancer, you have a lot of things to deduct from your business expenditure. This would include the cost of a home office, equipment, and even travel expenses.
Keep those deductions low to minimize your taxable income, meaning more money in the pocket.
Take extra precautions to consult with a tax professional so you can make sure not to miss any deduction that you might be entitled to.
10. Invest in Retirement
As a freelancer, you fall out of the employer-sponsored retirement plan, so you actually have to create one yourself. You may want to take care of your retirement savings by opening either an IRA or a Solo 401(k).
The sooner you start saving, the longer your money has to grow, earning compound interest in your favor.
11. Set Long-Term Financial Goals
In fact, it could get unbearably pointless to save without some particular goal in mind.
Set clear financial goals, like saving for a house, a car, or early retirement. Concrete goals will yield higher motivation toward saving and disciplining during those lean months.
Is It Possible to Save Money with Irregular Income?
You can always save, provided you are dedicated to the course of saving, set a plan or target, and have a source of income to enable savings.
Herein, a few ways you could save even when your income is irregular are presented.
1. Save When You Have Extra
In those months when you have more earnings than expected, shift your focus to saving. Instead of spending it on worthless things, put that extra coming into your savings or emergency fund.
2. Minimum Savings to Be Had
Even in those low-income months, try saving a small amount, even up to $50 or $100. Consistency is key.
3. Use Percentages Rather than Fixed Quantities:
Save a proportion of your earnings rather than a fixed dollar amount every month. What this means is that instead of saving, say, $500 every month, try saving 10-15% of whatever you make during that month.
This way, it will be easy to save money even in those lean months.
How Do Freelancers Handle Irregular Income?
These can be challenging to work with, but freelancers can manage irregular income provided they use the correct strategy. How?
1. Budget on Your Worst Month
If you have to make a budget, it needs to be based on your worst month. You know then that on those worst of months, you at least can cover the necessary bills and put any extra you get in on better months straight into savings.
2. Buffer Account
A buffer account supplements an emergency fund. In other words, another savings account to help cover infrequent expenses or unexpected costs.
The buffer ensures that you do not dip into your emergency fund for those small, everyday financial hiccups.
How Can Freelancers Save for Health Insurance?
Another common question, now from freelancers, is about health insurance when employers are not covering you. Save on health insurance by reading about your options, such as:
1. Health Insurance Marketplaces
The Federal Health Insurance Marketplace provides subsidies to people of many different income levels, and these might make a huge difference in your premiums. You can see what is available to you through your state’s health insurance marketplace.
2. Health Savings Accounts (HSAs)
Individuals with an HDHP are allowed to include a Health Savings Account with them. Money can be deposited in such a balance with tax write-offs for medical expenses.
3. Freelancer Unions
Practically any freelancing union and association will have group health insurance for its members at a lower cost. That could prove to be a more comprehensive coverage, much cheaper than the above-mentioned options.
Conclusion
To that aspect, freelancers must take responsibility in terms of financial management. In pursuit of these strategies, you will be saving money steadily but surely against whatever financial upheaval may finally come your way.
After all, the secret of successful saving lies in its regularity, however irregular the inflow might be. Automate your savings, track your expenses, and plan for downtime.
Then you will have a secure financial future, but not at the cost of freedom that comes with freelancing.