Freelancers, You Need These 5 Money Management Tips
According to a Freelancers’ Union study cited by Forbes, freelancers make up about 35% of the U.S. workforce.
That’s a staggering figure. To be fair, not all freelancers work independently on a full-time basis. Some simply use side gigs to earn extra income, pad their CVs, or exercise professional itches they can’t scratch at their 9-to-5 jobs.
Occasional and full-time freelancers alike face unique financial pressures that require attention and discipline. Those who follow these five money management tips are more likely to come out ahead.
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Stay on Top of Your Obligations
It’s impossible to overstate the importance of paying your bills on time. You can probably think of a few reasons right off the top of your head to stay current on business and personal obligations. Things like avoiding late fees, penalty interest charges, and service interruptions, to name just three.
Timely payments are important for another reason too: They help build credit. If you’ve chosen to house your freelancing business in a pass-through LLC or some other corporate structure, paying your business-related obligations out of designated business accounts (or with business credit cards) can improve your business credit rating. Should you need to invest in your operation in the future, a rosy business credit profile will come in handy.
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Use a Balance Transfer Card to Burnish Your Credit & Reduce Your High-Interest Debts
If you don’t yet have a personal or business credit card, check your credit score and apply for a card that fits your needs and financial profile. Using your assigned credit limit responsibly and making timely payments are great ways to raise your credit score.
If you’re struggling with existing credit card debt, consider applying for a balance transfer card with a long low- or no-interest introductory promotion. The best balance transfer cards waive interest for as long as 18 to 21 months, providing plenty of time to get high-interest debts under control.
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Set Up an Account to Handle Your Estimated Tax Payments
If you earn substantial income from freelancing, you’ll likely be required by the IRS to make quarterly estimated tax payments. Set up an interest-bearing, FDIC-insured savings or money market account and make regular contributions (weekly or biweekly) to ensure that you’re not caught flat-footed by your estimated payments due date.
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Launch (and Grow) Individual Retirement Account(s)
It’s never too early to begin planning for retirement. If you haven’t already done so, open an individual retirement account (IRA) and begin making regular contributions. Speak with a licensed financial advisor to determine whether you’d be best served by a traditional, Roth, or SEP IRA. Each has its own set of rules, limits, and idiosyncrasies.
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Maintain an Emergency Fund
Lastly, don’t neglect your emergency fund. You should have at least three months’ income set aside in liquid accounts to address unexpected expenses. Six months’ income is preferable.
Stay Lean, Stay Ready
No one knows what the future might bring, least of all freelance creatives and independent entrepreneurs. When you’re in the business of making your own way through the world, you have to be ready for everything.
That’s why it’s so important for freelancers to follow these five money management tips — and be cognizant of dozens of others we haven’t mentioned here. No matter what you do or where you hope to take your burgeoning business, a sturdy financial base ensures that you’ll be better prepared for what lies ahead.