In some regards, salaried employees have it pretty easy. Since their income is predictable, they know how much money will be coming in each month. Freelancers, by contrast, often have to contend with the ebbs and flows that come with working independently -- which is why it's especially important that they check in on their finances more often. If you're a freelancer, here are some midyear moves to make.
1. Review your budget
If you created a budget in January based on your anticipated income and expenses, now's a good time to see how well it's holding up. First, review the past six months' spending across all categories. Next, see how much income you've generated on average. Finally, compare your total spending to your total income and see if the numbers match up. If you're not spending more than you're making, you're in pretty good shape. Otherwise, you'll need to adjust your budget to align with what you've been earning. You may also need to make changes to specific expense categories, especially those that aren't fixed, to protect yourself in the event that your earnings drop in the second half of the year.
Let's say your total budget allows you to spend $3,000 a month, but you find that you've only brought in $2,800 a month on average during the first half of the year. In that case, you'll need to cut corners to make sure your earnings cover your expenses. Otherwise, you could wind up in debt.
Similarly, let's say you've been budgeting for $3,000 a month in total expenses and have been earning an average of $3,000 a month, but you also expect to see a dip in workflow over the summer or around the holidays. What you'll want to do then is examine your individual spending categories and find ways to lower your expenses. While you can't cut your car payment or rent, if you make an effort, you can probably find ways to spend less on groceries, entertainment, and clothing.
2. Follow up on outstanding invoices
When it comes to getting paid as a freelancer, you're basically at the mercy of the clients you bill. And no matter how many contracts you negotiate that call for payment within 30 days of services rendered, you're likely to find that some (or many) of your clients take their sweet time in paying you what you're owed. That's why midyear is a good time to take stock of your outstanding invoices and make some follow-up calls.
Remember, money received today is always worth more than money received in the future. When clients take their time paying you, you lose out on an opportunity to invest your money immediately and grow it into a larger sum. Worse yet, if you're mostly living paycheck to paycheck, missing out on even a few payments could mean the difference between covering your monthly expenses and resorting to debt while you wait for those checks to roll in. And whenever you carry a balance on your credit card, you risk lowering your credit score and losing money to interest fees.
3. Review your estimated tax payments
As a freelancer, you're responsible for paying your fair share of taxes to the government, but calculating the amount you owe is often left in your own hands. And it's important to nail down the right amount to pay every quarter. If you pay too much, you risk parting with income you could really use in the short term, not to mention giving the government an interest-free loan. Pay too little, however, and you could face a penalty come tax time. To figure out if you're on track, compare this year's earnings and tax payments so far with what you paid last year. If they mostly match up, you may not need to make adjustments.
4. Track your workflow and pad your pipeline
Freelance work isn't always steady, but now's a good time to see how many hours you've been averaging each month and make sure you have enough work going forward. If the latter part of the year tends to be slower than the first half, consider doing some advertising or reaching out to former clients to see if they require your services. You might also try comparing this year's billables thus far to last year's to see how well you're faring. If you're behind already, it's a sign that you might need to source more business or work on becoming more efficient.
While being a freelancer has its perks, there's also the downside of variable income that throws many self-employed individuals for a financial loop. So before you get caught up in your summer plans, take some time to review your finances and see where you stand. A few strategic moves might save you from financial turmoil down the line.
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