Guest Article By: Nadia Jones
Being a freelancer can be both personally and financially rewarding. However, managing your finances as a freelancer is a little trickier than managing your finances as a full-time employee. How you're paid, do your taxes, and get health insurance will differ when you're working from home on a contract basis for several different employers. If you feel a little lost when it comes to your finances as a freelancer, consider these five tips:
1. Don't Forget About Self-Employment Taxes
If you're new to freelancing, you may not be aware that you have to pay a self-employment tax in addition to your regular income tax. Unfortunately, being self-employed will cost you extra in terms of taxes. It's a good idea to put around 25% of each of your paychecks into savings. You'll need to pay around that much to the IRS when it's time to do your taxes. If you work in a state with no state income tax, you may be able to get away with saving around 20% per paycheck for your taxes. Look up tax rates in your state and make sure you adjust how much you set aside for taxes accordingly.
2. Prepare for Gaps in Work
Being overloaded with work one month doesn't necessarily mean that you'll be overloaded with work every month. Unfortunately, freelancers often work on short-term assignments and don't always have a steady stream of work. When you are making a good amount of money on freelance projects, make sure you put some of it into savings to help you if and when the well runs dry.
3. Shop Around for Health Insurance
As a freelancer, you'll need to pay for your own health insurance. Unfortunately, private insurance plans can be incredibly costly. Make sure you spend a good amount of time researching your health insurance options and talking to other freelancers about which insurance providers they've had good experiences with. If you're relatively healthy, there's a good chance that you'll be able to find a plan that meets your needs and fits into your budget. It might just take some time and effort to find that plan.
4. Take a Personal Finance Class
There are a number of free personal finance classes online, and oftentimes local libraries and community colleges will offer affordable or free finance classes. Knowing how to manage your money is essential to being a successful freelancer, especially when you're first starting out. So, it's a good idea to take advantage of the resources available to you. Empowering yourself with the right financial knowledge is one of the most important things you can do.
5. Document Expenses and Claim Tax Deductions
Make sure you write down all of your business expenses and save all the receipts pertaining to your business expenses. You'll be able to claim them as deductions when you do your taxes, which can actually save you quite a bit of money. As previously mentioned, freelancers get hit pretty hard when it's time to pay taxes. So, it's a good idea to try to do everything you can to minimize how much you have to pay the IRS.
Becoming a freelancer might just be the best career move you've ever made. Just make sure you're prepared to spend extra time managing your financial situation, and have fun working in the comfort of your own home!
Nadia Jones is a freelance writer who primarily works in the higher education industry. On the side, she writes for numerous websites and blogs about online college options and personal finance. Nadia loves feedback from readers and can be reached at [email protected]