By Sabrina Loh
The freedom and flexibility offered by a freelance career are very appealing, however, there are many aspects that are traditionally handled by an employer that you must now take care of yourself.
That’s one of the most challenging things about being a freelancer — figuring out how to manage your finances.
Here’s a guide to help you figure it out:
Track your income
The nature of freelance work means your income fluctuates, so it’s important to keep track of your income — How much did you earn this month? Did you earn more last month because of a festive season?
Gaining insight into this data will help you to prepare for the peaks and dips throughout the year, such as by having money put aside for months when business is slow.
Separate personal and business bank accounts
Separating your personal and business bank accounts makes booking keeping much easier, as you won’t have to dig through your transaction history to figure out which ones are personal expenses and which ones are business expenses.
You’ll thank yourself for doing this when it’s time to pay your taxes.
Create a budget
No two months are the same when it comes to freelance income. Therefore, having a budget can help you to manage your expenses through these fluctuations.
For instance, you may make RM8,000 one month and RM2,800 the next month. Your budget ensures that you don’t overspend on a good month and compensate during the dry spells.
Use the data you’ve collected from tracking your income to figure out your monthly average income as your budget number. With that said, it’s important to regularly review and modify your budget to ensure that it works best for you.
Follow up on late payments
It’s surprisingly easy to forget about late payments when you’re managing so many clients simultaneously. You send out an invoice, but they’re late on their payment, and a month later you forget about it and it feels awkward to chase your client up.
This is money that you worked hard for and you deserve the payment. Set aside some time on a monthly or bi-weekly basis to follow up on any outstanding invoices. You can also consider adding on a late fee penalty.
Prepare for taxes
When you’re a full-time employee, your taxes are usually automatically deducted from your paycheck. However, when you’re a freelancer with an annual income exceeding RM34,000, you have to calculate and pay your taxes yourself.
Set aside time every week to do your bookkeeping. It’s a tedious task, but a few hours a week means less of a headache at the end of the tax year.
Read this guide on how to file your taxes as a freelancer in Malaysia.
There will be periods where business is roaring and your income is great, but there will also be low times, where work might be difficult to secure, or you may also fall sick and decide to take a break.
It’s crucial that you’re prepared for this, as there will always be expenses that need to be paid. Having an emergency fund saved up will help you to weather these times. Aim to save up for at least 3 to 6 months' worth of expenses.
Plan for your retirement
As a freelancer, you don’t have an employer to set up and make provisions for your retirement accounts (EPF). Don’t overlook this step even though retirement may seem so far away. Experts suggest putting aside 10% to 15% of your income every month towards retirement.
The Bottom Line
Working for yourself can be incredibly rewarding, however, managing your finances is a challenging task. With some planning and consistency, it’s possible to take charge of your finances and stay in control of your money. This is when you’ll truly reap the wonderful benefits of freelancing.
Tune into the BigPay blog every week to learn more tips like this.