Finances are at the core of surviving in a world focused so heavily on economics. If you're not able to support yourself it's going to be difficult to focus on your goals. So we’ll need to start thinking about how we sustain ourselves financially.
Calculate Freelance Cost 📺+✏️ +📥
Start a Business
Open a Bank Account
Build In a Buffer
Draft a Plan B
1. Calculate Freelance Cost
Before we do anything, we need to have a clear idea of our cost of living and running a business. This will help define your "base rate", something we'll dive deeper into in the "Price your Work" section where you learn how to calculate your rate based on the client and situation.
Think about all these costs and come up with a realistic monthly income that you will need to generate in order to pay your bills and keep a roof over your head.
✏️ Start your own spreadsheet
Make a copy or download the spreadsheet and start filling it out to get a good overview of your finances.
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How much will you need to earn each year to live the life you imagined? This, of course, will vary from person-to-person. Perhaps you envision yourself working remotely, traveling from place to place; or perhaps you’re thinking of spending more time with or starting a family; All of these situations are incredibly different and should generate very different answers.
How much will it cost you to go freelance? Yes, freelancing will cost you something. Perhaps you don’t want to work from home or a cafe, and need to factor in a coworking or office space; or what about software and hardware? If you’re an international working in another country, such as myself, then you may need to think about the cost of a visa. These are real costs that need to be considered when planning your career as a freelancer.
What benefits are you currently getting that you will need to take care of yourself? If you happen to be in college, working with a studio or company for example. Oftentimes that includes little perks that we take for granted, like free snacks and a great creative atmosphere—all the way to health care and retirement plans.
2. Start a Business
Starting a business means more formally incorporating yourself (often as a Limited Liability Corporation or LLC) or setting up a company (e.g. C Corp, S Corp). There are a few options depending on how you want your business to be structured and this will, of course, vary depending on what country you’re in.
Having a business is not only an added layer of protection between you and your client, but it also helps show your clients that you are a professional.
You should be able to get a free consult with a knowledgeable accountant or lawyer to talk about what business structure is best for you.
3. Open a Bank Account
It’s a good idea to open a separate bank account with a credit card for your business income and expenses. Thiskeeps your business expenses separate from your personal expenses. From there you can pay yourself to your personal account.
Choose a bank that will meet your needs as far as accessibility, perhaps shares your values based on what they invest in or anything else that you feel is important to you.
When you work as an employee, taxes will be taken out before you get paid, but when you run your own business, you have to calculate and pay those taxes yourself.
You want to make sure you know approximately how much you will earn this year so you know how much taxes you end up paying by the end of the year or quarterly.
Keep a percentage aside for taxes.
In most countries, you only pay taxes over your income minus your business expenses.
This is to incentivize you spending the money to keep currency flowing in the system.
A transaction for a business expense on your account does not often show, “what” you bought, so it’s good to keep a copy of your receipt (or take a photo of it with your phone) so you can prove it was a business expense.
There are different rules based on where you live, so ask your accountant for more details.
Guide to taxes Covers Organizing and preparing (will cover that in the last section as well) Filing and Paying taxes, some forms you should know about.
Deductions guide Walks through FORM 1044 for what expenses are deductible from your income so you pay fewer taxes. Will help you categorize expenses.
5. Build in a Buffer
I strongly recommend that you have at least 3 months worth of that monthly income saved up.
This will allow you to have a little financial wiggle room if you don’t get a lot of work at first and will make the transition to becoming a freelancer a little less stressful.
Instead of desperately taking the first job that will pay, you can be a bit more strategic and wait for a good project to come your way.
This will set you off in the right direction. I would also recommend keeping that three-month buffer in place as you move forward. Freelancing can be a bit of a roller coaster ride financially-speaking. Sometimes money rolls in, sometimes it doesn’t.
Next to saving up 3 months of living expenses. Think of something you could always sell that will remain worth a couple months of your income in the future. An expensive watch or the ability to rent something out, like an apartment on Airbnb for example.
6. Draft a Plan B
No matter how confident you are in your abilities, you should always have a plan B, as it never hurts to have one. After all, if freelancing doesn't work out, what will you do? Where will you go?
Give it some serious thought but don’t obsess over it.
Having a financial buffer has allowed me to be able to say no to boring projects and wait for cool projects to come my way. And instead of waiting, you can work proactively on projects that generate new opportunities. It also gives me the ability to just take time off when things get really busy.