Financial Literacy for Freelancers: How to keep your money under control

Working as a freelancer offers many benefits, including the freedom to choose your tasks, schedule flexibility, and the ability to set your own rates. However, this freedom comes with the added responsibility of managing your finances. Unlike a salaried job, where many financial issues are handled by the employer, freelancers take this responsibility entirely upon themselves.

Financial stability is the key to a successful freelancing career. To achieve it, it is important not only to earn money, but also to distribute it competently, accumulate and plan. In this article we will consider the main approaches to financial management for freelancers, which will help to keep money under control and avoid unnecessary financial risks.

Separation: Personal and business accounts

One of the main principles of sound financial management for freelancing is the separation of personal and professional accounts. While it's not a requirement, having a separate account for work makes it easier to manage your finances. Because when you have separate personal and business funds, it becomes easier to keep track of income and expenses. This makes it easier to prepare tax returns and see the real profit from your work. In addition, this approach will help you track the growth of your business and make it easier to manage your budget.

Separate professional accounts are also useful in case of tax audits. Not only will it save you from confusion, but it will also create a more professional image in the eyes of your clients. Maintaining a professional account also makes it easier to analyse the financial health of your business and keep track of revenue trends.

Keep a personal and professional budget

Budgeting is the foundation of financial literacy, especially for freelancers with irregular income. Creating a budget helps you control expenses, plan for future spending, and avoid unforeseen financial difficulties. Here are the two types of budgets we cover:

• Personal Budget: A personal budget allows you to allocate funds in a way that avoids overspending and provides financial stability. This is especially important for freelancers whose income can fluctuate from month to month. A budget helps you allocate money so that you can safely cover essential expenses even in months when your income is lower. A budget is actually a spending plan, so it simply allows you to decide in advance how you are going to spend your money in the coming month or months. Planning your spending in advance allows you to maintain a work-life balance, so use a zero-based budget to categorise all your income and avoid rash spending;
• Professional Budget: Maintaining a professional budget is important to effectively manage your business's working capital. Such a budget helps you see where major expenses go and identify items where you can cut costs. This can be useful for both minimising costs and planning investments to grow your business. A professional budget not only allows you to allocate funds efficiently, but also to understand which expenditures bring the most benefit to your business. For example, spending on advertising, buying equipment or attending professional conferences can significantly increase your future revenues.

Airbag: Save for the unexpected

One of the most important tasks of a freelancer is to create a financial safety cushion. A steady income is not always a guarantee of freelancing, so it's better to prepare for unforeseen situations in advance. For example, for a period of lack of orders or temporary inability to work.

You should realise that saving for emergencies is necessary for everyone, but it is all the more important if you are a freelancer. With more unpredictable salaries and unstable situations, it's better to be prepared for emergencies. Create a savings account that holds an amount equivalent to your expenses for 3-6 months. These funds will help you cope with any difficulties without having to take out loans or reduce your quality of life. Start saving even small amounts, gradually increasing the size of your safety cushion.

Monitor your accounts

Managing your accounts effectively is an essential part of being a freelancer. Although freelancing involves a simplified accounting system, it doesn't mean that you should limit yourself to minimal efforts. Keeping regular records of income and expenses will help avoid confusion and make tax returns easier to prepare. Micro-entrepreneurship means that, unlike other types of businesses, you benefit from a simplified bookkeeping system. Whilst this is an advantage, it doesn't mean you have to stick to the bare minimum.

It's handy to use spreadsheets or specialised bookkeeping software. This will help you keep track of the financial health of your business and identify potential problems in time. Bookkeeping is also useful for analysing your income and expenses, which will help you optimise your budget and improve your financial stability. Your system can be as simple as an Excel spreadsheet, or you can opt for more complex and comprehensive accounting software that will not only save you time, but also make it easier to prepare all the necessary financial documents.

Summary: Financial literacy for freelancers

Financial literacy is the foundation of a successful freelancing career. Proper income management, budgeting, creating a safety cushion and retirement savings - all these aspects help to reduce financial risks and ensure stability. Keep an eye on your finances, plan your expenses and invest in your future so that your freelance work is not only free but also financially secure. The earlier you start taking care of your financial stability, the more opportunities you will have in front of you. Freelancing offers unique opportunities, but it requires discipline and a responsible approach to managing your finances.