When it comes to your freelance finances, staying organized can be a tall order — especially when you’re busy courting clients and hitting project deadlines. I’ve learned from personal experience that staying on top of your finances today can prevent stress and headaches down the line. Not only will you make sure your invoices get paid on time, but you’ll have a better understanding of how much you’ll need to save for tax time.
Here are some tips on how you can stay organized and keep your finances in tip-top shape:
To Do: Daily
Track your business expenses. As a freelancer, you know that there’s nothing more tedious than having to track down a bunch of receipts and other payment records for tax purposes. To avoid any major face-palm moments, I have a specific process that I use for keep tracking of any tax-deductible business expenses. Every time I make a qualifying purchase, I add it to my list — taking note of the category under which it falls. I also take a photo of the receipt. To keep things simple, I pay for most of these business expenses with the same credit card so that they’re all included on one monthly statement.
Want to make it even easier? There are a handful of apps like Shoeboxed, Mint and QuickBooks that can help you track your tax-deductible expenses. These apps — which are linked to your bank account, credit card or debit card — will automatically log all of your transactions. When I have a few minutes, I go through these transactions to make sure they’re accurate and filed under the proper category.
To Do: Weekly
Make sure your expenses are logged. If you’ve been super busy and you haven’t had time to log your business-related expenses each day, carve out a bit of time at the end of the week to play catch-up. Trust me, taking a few moments every seven days to track your expenses beats experiencing a week-long panic come tax time.
Do an invoice check. If I can spare a few minutes, I’ll create drafts of invoices ahead of time so they’re ready to be sent out at the end of the month. I’ll also do a quick check to see if there are any outstanding or near-due invoices. For outstanding invoices, I’ll send the client a friendly reminder to let them know that their payment is due.
To Do: Monthly
Send invoices. Before you can get your hard-earned paychecks, you’ll need to send out invoices. This process take me anywhere from 30 minutes to an hour each month. If it’s easier, you can spread out this task over the course of the day. But if you balk at the idea of sending invoices just once a month, you might want to send yours out weekly or twice a month, instead. Just think about what works best for your cash flow, time management and payment agreements with your clients.
Deposit your paychecks. The payments I receive from my clients come in the form of checks, direct transfers to my bank account and PayPal deposits. At the end of the month, I deposit any paychecks and transfer the money to my business account. I use a combination of self-employed accounting software — like Xero or FreshBooks — and a good ol’ Excel spreadsheet to track my payments. Then I transfer all the money into my account in one fell swoop.
Save for taxes. Let’s face it: There’s no magic overall percentage of income you need to save for taxes. Instead, you should set aside some money each time you get paid. Remember, you need to have enough stashed away to cover your annual tax payments as well as your estimated quarterly taxes. I know, it hurts to see your take-home pay shrink after transferring funds for taxes. But it’ll sting even more to incur penalties for not paying enough — and it’ll be even worse to not have enough saved, period.
Don’t ignore your financial housekeeping and let your money management get out of control. After all, effectively maintaining your freelance finances is a vital part of running a successful business. By regularly devoting a little bit of time to making sure your finances are in good shape, you can avoid pulling your hair out come tax season.