How to future-proof your finances as a freelancer
Earning your income through independent contracting allows for a lot more freedom in comparison to the corporate world. But this freedom comes at a cost. As a freelancer, you are also a business owner and that comes with many responsibilities. You need to tend to every facet of your business to ensure that it is a sustainable operation.
One of the biggest components of running a successful operation is making smart financial decisions that will ensure a viable business. Life can throw unexpected financial shocks your way at any time, so it is important to build up financial resilience. This article will look at 5 ways to future-proof your finances as a freelancer as told by Informi.
Find the best deals
When you are focusing on growing a lasting business, the last thing you want is for it to be costing you more money than it should. A helpful way to ensure you don’t spend more than necessary is to check that you have the best deals for ongoing bills such as energy, insurance, broadband, banking, and mobile phone contracts. Always shop around and compare deals, as you could save hundreds by moving to a cheaper deal. If you are tied to a contract, you may need to wait until it ends before you switch, although it is often worth weighing up the penalty for leaving versus the amount you will save by switching.
Improve your budgeting
To run a sustainable business, you will need to have a clear understanding of your finances. It is important to carefully go through your bank statements and know exactly what your expenses and income are, and if your financial situation is changing. From this information, you can create a budget that is realistic and flexible, but also one that prioritises the future by allocating as much money as possible for your savings. As a freelancer, it is likely that you will earn vastly different amounts each month depending on the number of jobs that come your way. And even as your earnings grow overall, it is likely that this will never change. To obtain a realistic sense of your average income, divide your annual income by 12 and use that number as a baseline for your budget.
Deal with your debt
Debt can spiral out of control very easily. This can add a lot of stress and financial strain, and it can damage your credit score and harm your chances of getting more credit in the future. Good budgeting is a way to ensure you don’t have more debt than you can handle. It is important to prioritise paying your bills on time. An effective way to achieve this is by setting up scheduled payments. This is quick and easy to set up and will automatically transfer the money to settle your bills without you having to remember. If you have a lot of debt, it is best to focus on repaying priority debts first. Generally, it is a good idea to pay the most expensive debts with the highest interest rates off first. It may also be worth looking into consolidating your debts if it will make them cheaper and easier to manage in the future.
Start saving for a pension
For many freelancers, retirement may seem like a long way off, but the sooner you can start saving for it, the better. Being self-employed means you do not have the luxury of a workplace pension, so you will need to make other arrangements. A good rule of thumb is to aim to save a percentage of your income every year that is half your age. So, if you are 30, you should try to save 15% of your annual income for a pension. This means your contributions will increase as you get older, and – by starting early – you can save smaller contributions because you will be investing over a longer period. Starting to save for pension early on also means your money has more time to grow.
Manage your growth
As a freelancer, it is important to create as many opportunities as you can and make sure you are always provisioning for growth. Every business has peaks and valleys, but increasing your opportunities will mean you will have higher peaks and fewer valleys. It is important to scale this growth, though, and only allow yourself to take on what you can handle in order to maintain quality and professionalism. Always take the time to honestly reflect on your freelance career and your achievements and develop realistic goals that will help you to grow your business in a sustainable way.
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