Being a freelancer is great, but it also means that you pay your own expenses. That means (and we’ll teach you why it’s important to avoid this, but more in a second) putting business charges on your personal credit card and not having a clear line between your personal finances and business finances.
Many freelancers put business expenses on their personal credit cards, or–and this is a big no-no–don’t even have a separate business card.
This puts us freelancers and self-employed folks on the track to massively increased credit card debt, which is bad. The kind of bad which means we can’t keep freelancing and enter into financial crisis mode.
Here are a few of the basics of budget management for freelancers.
Freelance Budget Management: Tracking Expenses
The first thing to do, if you’re not doing it already, is to track every single purchase you make in your personal life and in your work life. We mean it.
Start using Mint, Evernote or a paid alternative like YNAB (You Need A Budget), Shoeboxed, Expensify, QuickBooks, FreshBooks, or Xero, and use it religiously. As a freelancer, you don’t have a stable income–this means keeping track of your expenses so you don’t end up broke or with credit card balances you can’t pay back.
Tracking expenses has a couple of advantages:
- It helps you figure out what your hourly rate should be.
- It helps you figure out what your biggest expenses are.
- It helps you figure out how much to reimburse other clients.
Also, use a separate credit card exclusively for work expenses if you can. This leads to….
Freelance Budget Management: Separate Accounts
Keeping separate checking accounts and cards as a freelancer is different if you’ve incorporated or are a sole proprietor. If you’ve incorporated, you likely have separate accounts for your business and personal life. Business credit cards also have the benefit of (in many cases) higher lines of credit which can help you scale your business out.
But if you are a sole proprietor, it’s important that you have a separate savings account and credit card devoted entirely to business expenses. I recommend having a savings account devoted to freelance expenses at a service like Capital One 360 or Ally; then keep a separate credit card entirely for business expenses. The best choice is one which either offers an extremely low interest rate or cash back for your most expensive business expenses–look at a low interest credit card from your local community union or a no-annual-fee credit card that offers good annual rewards.
This will make it much easier when tax time rolls around and you find yourself dealing with the paperwork that every freelancer loathes.
Freelance Budget Management: Budget, Budget, Budget
Using Mint, Xero, or a similar platform, create a budget that you can than export to Excel using any of many templates available on the web.
You want to make sure you’re keeping track of revenue (the earnings you’re taking in), personal expenses (things you are buying or spending money on in everyday life), business expenses (things you buy or use for work), and profit or losses. Keep in mind that, come tax time, only 50% of your work restaurant visits for entertaining can be deducted from taxes.
Plan ahead using these numbers, see how much you need to save in case of an emergency or a client not paying you online, and strategize using these amounts.
Freelance Budget Management: The Last Word
Remember: Budgeting helps you make more money in the future. Once you know how much money you need, you’re more confident negotiating with your clients. And more importantly, you save a lot of money in credit card debt. And we all like that, right?