Since even before the global coronavirus pandemic, hundreds of thousands of employees have shifted from the traditional nine to five job structure, instead embracing the flexibility and adaptability of the gig economy. Since the coronavirus pandemic led to record numbers of people working remotely from home, the freelance and gig working style has grown even more.
One of the side effects of the gig economy is that managing individual finances as a full time freelancer is more of a challenge than within the pre-established structures provided by a more traditional employer. Things like planning ahead for retirement and keeping track of accounts for tax filing purposes can be tricky as an independent contractor.
In this article, we will take a look at the common financial challenges that freelancers are likely to face. Then we will explore eight helpful tips, strategies, and innovative solutions that freelancers can use to help tackle financial management and thrive.
Financial Challenges Freelancers Are Likely To Face
As a freelancer, you have all the freedom and flexibility to pursue the kind of gigs you are interested in doing. You have the ability to shape your own schedule, working when and where is most convenient for you. And you have some degree of control over how much or little you work each month. But this level of freedom can come with some challenges as well. Here are some common financial challenges freelancers are likely to come up against as your gig career develops:
1. Invoicing
Creating and tracking invoices can be a headache for freelancers, especially if you are working with a diverse array of clients and employers. Keeping an organized account of which invoices have been submitted, which are in the draft stages, and which are overdue to be paid, can feel like an entirely separate part time job.
2. Tracking Expenses
Similar to keeping track of invoices, tracking all of your expenses as a freelancer requires a high degree of organization and an adaptable system for tracking your expenses. If you are not regularly tracking your work and personal expenses, then when it comes time to fill out forms for your taxes or submit invoices for work expenses, your accounts may be muddled or hazy. Trying to recall how much you spent on gas to transport some house plants across the city three months ago is quite the challenge, for example.
3. Managing Taxes
Accurately filing your taxes can be a further challenge for freelancers. Understanding the distinctions between personal expenses and the small business costs of running a freelance career can be difficult. Hiring an accountant specifically to help you sort through independent contractor tax filing can be costly as well.
4. Navigating Healthcare And Other Benefits
When you are in the structure of one single organization, the HR department will typically be responsible for providing you with options for insurance and other benefits. Your company will set out a clear paid time off and vacation time allotment for you, which is harder to define as an independent freelancer. Navigating the never-ending pursuit of gigs versus establishing healthy work-life balance boundaries can sometimes lead to burnout for freelance employees.
8 Financial Tips and Strategies For Freelancers
1. Remember That You Are A Small Business
It is important to remember that you are, in fact, a small business. Your company may consist of just one employee, and that employee just so happens to also be the boss. But acknowledging that your freelance endeavors combine to form a whole company can help you to shape your financial planning with a more empowered approach.
2. Start Saving For Retirement
One important factor for freelancers to be aware of is how to choose resources to help you save for retirement. While a traditional company may offer you pre-set retirement plans, as an independent contractor you will need to be proactive, setting up an independent retirement fund.
Luckily there are plenty of applications and financial planning tools that you can use to help you keep track of retirement savings funds, and ensure that you set aside a certain minimum amount regularly.
3. Diversify Your Income
A smart strategy for providing more financial security for yourself as a full time freelancer is to create multiple income streams. By diversifying your clientele and sources of income, you will be able to weather the natural ups and downs of the ever fluctuating market that drives the gig economy.
For example, driving for Uber in your spare hours is a perfectly viable way to help create an additional income stream. Uber drivers can make good money while working extra hours. With two or three different income streams all active at the same time, you will be able to float through even the driest of patches for one particular type of gig.
4. Make Investments – Even Small Ones
Even when your income is not as sizable as a major salaried contract, it is important to invest a portion of your income. Digital investment apps allow you to invest a small set amount into a diverse portfolio of possible stocks and other types of investment. Including a small investment portfolio among your assets will provide you with a financial growth area that can keep expanding in the background, while you keep working your gigs and freelance contracts.
5. Customize Your Contracts
Every freelancer’s career trajectory looks different. That is part of the beauty of working independently and pursuing gigs rather than a set office job. Your contracts and invoices should be able to reflect these unique specificities. Make sure that the software you use for creating your freelance contracts come with features such as customizable templates, personal signatures, and individual monitoring.
You should be able to easily view the status of each individual freelance contract, whether it is just in the draft stage, or you have already sent it and need to nudge your employer to sign it.
6. Choose The Right Accounting Software
Accounting software should allow you to keep track of billable expenses, hours on the clock, mileage (if your freelance gigs involve physical travel), and invoices. Utilizing accounting software for freelancers can also help you separate out your personal financial accounts, including bank accounts, spending, and taxes owed, from your business financial accounting.
Most of today’s freelance accounting software options will include mobile apps, so you can keep track of your freelance accounting on the go, and update the necessary sections as often as you need. Once you get in the habit of frequently updating your accounts with relevant details, you will no longer have to worry about trying to remember the minutiae from months ago that you may have forgotten to include.
7. Create A Monthly Budget and Stick To It
Creating a monthly budget may seem daunting, but there are plenty of apps and finance tracking software you can use to keep track of your expenses as you go. A general rule of thumb for maintaining a realistic budget? Don’t spend more than you make. It may sound straightforward, but sticking to the money you actually make will help you avoid costly credit card and loan repayment plans.
Add into your monthly budget a section for repaying any debts you have already taken on. Try to get in the habit of paying off your credit card bill every month, otherwise the debt will roll over into future months, accruing more interest and costing you more money in the long run.
8. Find the Right Niche CRM Software
For gig workers, finding the right CRM (customer relationship management) software is key. The gig economy is not just limited to remote online workers; manual labor workers and contractors also participate in the gig economy, for instance, and they too will need to find the right CRM software for their contracts.
The good news is that there are different CRM tools available for very niche sectors of different industries. Home improvement is an example of an overarching industry that encompasses maintenance technicians, home remodelers, plumbers, roofers, and so on. But rather than simply looking for general home improvement CRM tools, contractors within these niche sectors within the home improvement industry can instead look for more niche CRM tools. As an example, roofing contractors specifically can look for roofing software with features such as digital whiteboards and on the go mobile app syncing for Android and iOS users.
Final Thoughts
The freelance gig economy lifestyle can be hard. You have to rely on yourself for just about everything. Luckily, you can now utilize apps and financial tracking software to create easy organizational and financial management systems.
Use tracking tools to help you maintain monthly budgets, keep track of your expenses, and customize your invoices. The latest financial management technologies will not only help you survive through the challenges of working as a full time freelancer, but will allow you to thrive as an independent business of one.
