7 Easy Tips To Streamline Your Finances as a Freelancer
/One of the more challenging parts of being a freelancer is figuring out how to manage and track your finances, but it doesn’t have to be so intimidating. With a few key tips and the right accounting software, this otherwise daunting task can be a lot easier than it seems.
First things first: Why accounting is so important for freelancers
Accounting, simply put, is the process of keeping financial accounts. The more organized, accurate, and timely your finances are, the better information you will have to make educated financial decisions that support your business goals. For freelancers and contractors, the primary elements of personal accounting include:
Paying yourself — Feeling comfortable paying yourself the money you deserve.
Making investments — Knowing when you’re ready to make the next investment, such as in an employee, mentor, etc.
Paying taxes — No one wants a large tax bill that they aren’t prepared to pay come April, and you definitely don’t want to leave tax deductions on the table. Keeping organized, accurate, and timely financials will ensure you know what to expect to pay and taxes and that you aren’t missing out on tax deductions because you forgot to record business expenses (hey, I understand, it’s easy to forget those miles driven to a business lunch!).
Bookkeeping made simple: 7 steps to take now
Separate your business and personal bank accounts
This will make it much easier to organizing and review your financial information. Separate means separate – no more swiping your personal debit card to pay for your business meals! This is one of the biggest mistakes I see when working with freelancers – they may have opened a business bank account, but they are still running various purchases through a personal PayPal account or credit card.
Find the right accounting tool
Many freelancers I’ve heard from use Excel, which is better than nothing; however, Excel can be time-consuming and is prone to human error. Typing in an expense as $9.99 versus $999 makes a big difference.
When choosing an accounting software, you’ll want to consider a few things: your income sources, your expense sources, and the cost of the software.
If you use a platform like PayPal or Stripe for payments, you might want to use accounting software that integrates with those payment platform(s). When it comes to expenses, consider what costs you commonly incur. For example, does your freelance work require a lot of driving? If so, you may want to use software that includes a mileage tracking app so you never miss out on deducting 54.5 cents per business mile driven on your tax return (this adds up quickly!).
You’ll also want to consider the cost of the accounting software, which can range from $0 to $30+ per month. Depending on your business’ needs, some of my favorite accounting software for freelancers includes, but is not limited to: QuickBooks Self-Employed, Wave, Fresh Books, ZipBooks, and Xero. At Money & Mimosas we also like Bench because it's super easy for even non-bookkeepers to use.
Once you’ve chosen your accounting software, you’ll want to automate and simplify the bookkeeping as much as possible.
Link Accounts
Link your bank account, credit cards, and payment platforms to automatically sync with your accounting platform. This way, you don’t have to manually enter transactions and you’ll always have up-to-date information.
Automatically Categorize Transactions
Some accounting software let you set rules that automatically categorize items based upon their characteristics. This is a huge time saver when it comes to updating your books.
Avoid Double Counting Revenue
If you link various accounts to your accounting software, watch out that you don’t double count transactions! For example, let’s say you receive payments on PayPal and at the end of the month, you transfer the money in your PayPal account to your bank account. If both your PayPal and your bank are linked to your accounting software, it’s possible the same income will have been recorded twice (once when your PayPal account receives the income, and once when your transfer the money from PayPal to your bank).
It’s important to either manually adjust these transactions within your accounting software, or set up a rule indicating that when the money is transferred from PayPal to the bank that this is a transfer of income – not additional income. Otherwise, when your client pays you $100 to PayPal and you transfer the $100 to your bank account, you could end up paying taxes on $200 rather than $100.
Setup recurring invoices when possible
This will reduce the headache of invoicing and improve cash collections.
Money Date Fridays
Set a reminder so that every Friday you can review your income, transfer a percentage to your savings account, and look over your expenses for the last 7 days. Then have a mimosa with a friend to celebrate your wins from this week! We call this your Money & Mimosas date!
