Due to the advancement in technology and the increase in the use of the internet, people especially freelancers and independent contractors have a flexible working environment. But this freedom is not without costs as one is rarely sure of how much money they will make in a given time. Improving the financial stability is a key to maintaining long-term position and optimal states of affairs. Here is a detailed guide on how one can improve his/her financial security being a freelancer or an independent contractor.
1. Budgeting and Financial Planning
Create a Realistic Budget
The first step is to look at your
income and expenditure. A detailed budget enables one to monitor his or her
expenditure and establish places that he/she could have saved more money. Some
of the applications that can be used to create or maintain a budget include; Mint,
YNAB (You Need a Budget), and Personal Capital, among others.
Establish an Emergency Fund
An emergency fund is also
something that is very important for freelancers since they have irregular
income. Ideally, the goal should be to save for at least three to six months’
worth of living expenses. This fund is used in preliminary expenses or in times
of low sales and income for the business.
Separate Personal and Business
Finances
Keeping your business finances in
a different account makes it easier to do taxes and indeed monitor the expenses
that went into the business. It also helps to give a better understanding of
your business financial situation.
2. Diversify Your Income Streams
Offer Various Services
Add more services to the list and
make it more diverse in the chosen niche. For instance, if you are a writer,
some of the packages that you can provide include; editing services, content
development services or social media management services.
Explore Passive Income
Opportunities
Other sources of income could be
setting up an online course, writing an e-book, or affiliate marketing. This
diversification can help to reduce the effect of a slow period in the main
freelancing business.
3. Invest in Professional Development
Upskill Regularly
Continuing education is the key to
success in the market as it helps you remain relevant in the market. Some other
sources that can be used are Udemy, Coursera and LinkedIn Learning that are
online platforms that provide courses to build your skill set.
Network and Collaborate
Build your professional
connections and go to the conferences and meet-ups. Networking can work as a
source of recommendations and cooperation, thus helping to expand the list of
clients.
4. Manage Taxes Efficiently
Understand Your Tax Obligations
Freelancers are required to pay
taxes for themselves. You must know your taxes: self-employment tax, estimated
taxes, and tax deductions.
Use Tax Software or Hire an
Accountant
It is recommended to use special
tax software for freelancers, for example, Turbo Tax or H&R Block.
On the other hand, one can hire an accountant to help in filing taxes in the
right manner and within the right time.
5. Secure Adequate Insurance
Health Insurance
It is important to get protected
with a health insurance specially to cater for the high cost of medical care.
Identify existing options that could be available from the Health Insurance
Marketplace or any professional organizations.
Business Insurance
Think about the business insurance
products such as Professional Liability Insurance or Errors and Omissions
Insurance. These policies are against the legal actions that might be made
against you concerning the work that you are doing.
6. Plan for Retirement
Open a Retirement Account
Some types of retirement account
that freelancers can contribute to include SEP IRA, Solo 401(k), or SIMPLE
IRA. These accounts are preferable from a tax perspective and assist with
saving for the future.
Automate Contributions
It is recommended that you set
your contributions on auto-pilot so that you save towards your retirement
timely. It means that even a considerable amount of money can increase over
time, even if the contributions are quite modest.
7. Using Financial Instruments and Assistance
Invoicing and Payment Tools
Due to this, make use of the
following FreshBooks, QuickBooks, or Wave to make the billing process
easier and fast in order to get paid on time.
Financial Planning Apps
Some of the apps that may be of
use include Pocket Guard, Albert, and Clarity Money to mention but a
few; these apps assist in tracking the how one spends his/her money and the
opportunities he/she has to save money.
Conclusion
To enhance the financial security
of the freelancer and the independent contractor, there are several ways to
manage the budget, the sources of income, the training, the taxes, the
insurance and the retirement funds. This way, you will be able to achieve a
better financial situation and all the advantages that come with freelance work
without having to worry about the risks. The following practices will help you
improve your financial position and guarantee a positive outcome in your
freelance business.
For more tips and for more
information on financial security, please visit the website www.
treasurywarden.com and always get the newest information on managing your money
if you are self-employed.