Freelancing is a roller coaster. Sometimes we get so caught up in the ride that we forget to plan ahead.
I’m a horrible accountant. Fortunately, my mother is a brilliant one.
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Since Mother’s Day is quickly approaching, today I will share with you three lessons my mother taught me about living with inconsistent income.
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Lesson #1: Pay attention to where every penny goes
It’s great when money is coming in. However, it’s important to pay attention to where money is going as well.
Create a separate business account for your income and expenses. Pay yourself out of this account a paycheck, even if it’s a check for $0.
My mother did this for years with my father’s business.
Every week he and his business partner took a paycheck just like they were working at a regular job. He worked in construction, which was pretty difficult to do during the winter. But they were able to make it work.
This way you’re not overspending when things are good and you can have money left over for important payments like taxes, insurance, and reinvesting in your business.
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Speaking of where money is going, you need to track not only your income but your expenses as well.
Don’t try to do it old school with a ledger book (unless you’re an illustrator and feel the need to sketch about your finances every month). Get a software package like AND CO (this article’s partner).
Trust me. It’s so much easier than the old school way. Been there, done that. Not a good idea.
Lesson #2: Know your local and federal tax laws (or hire someone like my mom to handle them)
My mom is not a freelance accountant, so please do not try to hire her or she will get mad at me 🙂
Taxes are sticky and messy and necessary if you plan on becoming a success. Creative freelancers like me start to freak out when we learn about all the rules, regulations and the worst of them all…numbers!
You may be penalized if you make over a certain amount of money per year and don’t file quarterly taxes.
Of course if it’s your first year freelancing you have no real way of knowing what you’re actually going to make.
But once year two hits, it’s time to get serious about conducting business like a grownup and just pay the darn things.
If you are in the US and your clients are sending you 1099’s, eventually the IRS will catch up with you anyway. The consequences could literally put you out of business.
Speaking of US taxes, depending on where you live, you could have local, state and federal taxes. So if you’re like me, pick up the phone and call someone who knows what they are talking about.
You can go to one of those mega tax services, but many times they don’t understand the unique financial situation that many freelancers are in and you could end up paying way too much.
Find an accountant who understands your business. You still need to have great software to help you understand and prepare reports and things of that nature.
Lesson #3: Don’t go into survival mode and take every low-paying project out there
The trend with graphic design and good written content has become very inexpensive and convenient for the client, but a nightmare for freelancers like us.
Many sites are a race to the bottom. I can’t afford to work for $2/hour. And don’t get me started on the contest sites.
You submit your best work and hope to beat 3 million other freelancers who are just as broke as you!
I’m speaking completely from experience here. I’ve done both of these things.
When you’re experiencing a dry spell, it can be tempting to run over to sites like Upwork or 99Designs because you need income right away.
You may need to take a couple of low-paying projects (or a part-time job) to keep food on the table, but it’s better to spend that time working on your marketing skills and finding partners to work with on large projects that require many different flavors of freelancer.
Lowballing clients are usually the hardest ones to work with. They manipulate your time and are never satisfied.
Stay away from job boards. I’ve learned over the years that job boards are for people with an employee mindset. Create a business by seeking out the clients that are right for you.
Thanks, Sharon’s mom!
Don’t be afraid of numbers. They are your friends. Just follow these three simple lessons. They are not always easy to do, but your accountant will thank you for it.
What are the biggest financial lessons you’ve learned from your business? We’d love to hear about it in the comments!
Disclaimer: This is not meant to be financial advice. Please consult with a qualified financial professional before you make any sweeping changes to your business.
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