One of the main challenges facing those who want to work as a full-time freelancer is knowing how to manage your personal finances. At the end of the day, you are the one responsible for your income, bills, and savings to live comfortably and fulfill your dreams.
However, due to a lack of proper preparation, it is common that some freelancers are not as efficient with organizing their time and finances, especially in the first year of operation. This can put your financial objectives at severe risk.
According to data taken from The Ministry of Industry, a federal council of commerce, 16% of individual micro-entrepreneurs (MEI) in Brazil are in default to get an idea. And more: 1.2 million MEIs (independent professionals) will lose their permission until December 2017. It’s a lot.
No need to panic, though! With good planning and by avoiding some major mistakes, you can keep up with your rates and accounts while still planning to take that dream vacation or buy that coveted item. All while working as a freelancer!
Below you can see the seven keys to make this possible:
1. Have goals
The first step towards managing your finances is to have clear objectives. Divided them into the short, medium, and long term. Write down everything carefully and define your goals clearly. Example:
Short term:
- Eliminate debt “x.”
- Buy “x” equipment for work
Medium-term:
- Resume language course
- Change equipment
- Eliminate debt “x.”
Long-term:
- “X” trip
Adjust your goals according to your plans and needs, and then start organizing. Define how many hours a day, you need to work to achieve them. Take into consideration long-term goals, and then set your plans.
2. Build a strategy
After defining your goals, go on to define how much you need to save monthly from your compensation according to your plan. You cannot achieve success without a solid plan or strategy.
3. Learn how you spend
The freelancer must know how much he or she spends on personal issues and with work. Month to month, you must have a clear idea of how much you are going to spend on water, electricity, cell phone, rent … in short, your personal finances. Permits, software, new equipment, and taxes are all labor costs. Separate the two categories and write down everything.
4. Have an expense sheet
Now that you have this information listed create an expense sheet. This is necessary to know exactly how much money is coming in and how much is going out.
This sheet will reflect all monthly expenses and plan for what needs can be reduced and saved. A good suggestion is to download a customizable Excel spreadsheet in which you can insert your data and account.
5. Define your salary
You must define your monthly compensation. This is done by calculating how much you want to earn per month to cover your expenses and live a comfortable life.
6. Save
While you are looking for your goals and starting your career as a freelancer or micro-entrepreneur, eliminate superfluous expenses.
Eliminate your unnecessary expenses. Everything that is not within your key objective must go.
7. Meet your established goals
Now that you are organized, here comes the part that requires more dedication: meeting the goals! Work according to what you planned for, and keep in mind that oscillations happen with any freelancing gig. Therefore, you must have discipline and dedication to ensure your career and finances will be successful.
All in All
You make a mess; you get to clean it up. It is as simple as that. Similarly, take care to pay off any debts you may have. With managing your personal expenses, comes a sense of accomplishment. The feeling of independence and self-sufficiency is like no other. Decide on a plan, stick to it, and achieve your dreams!
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