This handy guide on how to manage our money if we ever make it satisfies our starving sweet spot:
by Kristin Wong
It’s hard enough to manage your money on a steady, regular income. When your income varies from month to month as someone who’s freelancing or self-employed, keeping your finances organized is even more of a pain. From my experience, you need a system. Set it up once, and it protects you forever. Here’s the system I use.
I’ve been a freelancer for several years now, and my clients have mostly been long-term, but there were some “feast or famine” months when I first started. Even now, my income can vary a few thousand dollars per month, especially if I’ve taken time off to go on vacation or something else pulls me from work.
Looking back, I made a few mistakes when I jumped into the freelance life. I had no idea just how different freelancing was from a regular, full-time job. Here are a few financial tasks I should have conquered beforehand:
- Save twice as much for an emergency. I’ve always had an emergency fund, but I underestimated how big it should be when I switched to freelance. As you adjust to your new work situation something will inevitably come up: business expenses, taxes, health insurance, losing a client, and all the other perks of self-employment. My first year of freelancing, I depleted my emergency fund. It was scary.
- Prepare for taxes and insurance. The main reason I drained my emergency fund was that I had no idea how much I owed in taxes. I was used to my employer taking out a portion of my paycheck, so I didn’t pay my own estimated taxes, which is what you’re supposed to do. The cost of health insurance also caught me off guard. (Mine is only $200 a month, which is nothing compared to other premiums.)
- Keep a cushion for irregular expenses. When your income is unpredictable, the last thing you need are unpredictable expenses. You can get an idea of your irregular expenses if you look at your bank transactions from the past year, but something will always catch you by surprise, even if it’s just a business expense, like video editing software or a course you want to take. In addition to a bigger emergency fund, I should’ve kept a cushion to pay for expenses like these….