There’s a common problem that affects freelancers and self-employed individuals of all kinds – they tend to neglect their personal finances in order to build their business. This is especially true if you are bootstrapping your business from the ground up.
I’m, unfortunately, never surprised when I hear stories about freelancers neglecting personal finances. I made this mistake for years until I finally hired an accountant who set me straight.
It may have seemed really scary at first, but I had to get in the habit of managing both a business budget and a personal budget complete with detailed personal financial goals.
As you probably already know, when you’re not getting a regular paycheck every two weeks it can wreak havoc on your finances. More specifically, it’s a little difficult to say organized. Here are some of the ways you can stop neglecting personal finances as a freelancer.
Separate your finances ASAP.
It’s very common for freelancers, especially in the beginning, to deposit all their client payments into their personal checking account and pay everything from there. This is called co-mingling your finances and it’s your accountant’s worst nightmare.
Your business and personal needs should have separate accounts. Not only does it make tax time less messy, it actually helps you stay organized. By separating the two, you start becoming very clear about what’s coming in and how much it costs to run your business. You also start becoming more clear about how much goes to taxes and what you can pay yourself.
Pay yourself first – twice.
In the world of personal finance, there’s a common saying that goes “Pay yourself first.” This basically means you should sock away money into savings as soon as you get a paycheck, otherwise, you’ll neglect to do it later.
When you’re a freelancer you need to pay yourself first not once, but twice. The first time is when you pay yourself your “salary”, otherwise known as the money you transfer into your personal account to live. Then, so that you stop neglecting personal finances, you need to pay yourself first again by taking savings from that “paycheck.”
In the beginning, when it looks like you’re breaking even, this can be very hard because you start to assume you don’t have the money. The interesting thing is that if you retrain your mind to think that you do have enough money by taking care of yourself first, then you start to make more money.
It’s happened to me twice already. First, I started putting money away for groceries even when I thought I couldn’t afford it due to variable income. Turns out I could afford it with no issue, I just thought I couldn’t.
Now, I’m putting the equivalent of a rent payment into savings each month to prove to myself that there is enough money coming in for me to cover business expenses, personal expenses, taxes and personal financial goals.
Sometimes, when it comes to personal finances, we do need to kind of trick ourselves into saving and believing we have enough money – especially when most of our society tells you there is not enough money to go around.
Final Thoughts
By taking these two tips into account, you’ll be able to ensure that you stop neglecting personal finances as a freelancer. Do not allow yourself to fall into the trap of having disorganized finances just because you have inconsistent income.
