Managing your finances can be tricky, especially when you’re your own boss. Freelancers, who fall in this category, often struggle with it, especially when they’re starting out.
REDnews spoke with two freelancers - Jony M Lee and Krupa Patel - and Shaun Levings, a Business Area Manager with Westpac, about how freelancers can successfully manage their money.
Separate your personal and business accounts:
As a freelancer, you need to be mindful that your income flow will be variable, so one of the first things you should do when setting up your business is separate your personal and business accounts.
Shaun said separating the two accounts is extremely important from a financial and reporting perspective.
Having separate accounts can help you monitor how your business is tracking and whether you're making enough money to pay your outgoings. Eventually you want to have enough money to be able to pay yourself a salary as well, he said.
Krupa, who runs a baking business called Cakes by Kaptured, has always kept her accounts separate.
“It makes it easier to reconcile your business account. You can see exactly who has made a payment what expenses you have had and the profit that is left at the end of each month,” Krupa said.
Create a budget:
Similarly, budgeting is a great tool for freelancers to keep track of their money.
Shaun said: “Budgets predict the money-making potential of a business.”
“We recommend that new business owners create two budgets - one that assumes a good first year and another one that's a little bit more conservative. Typically, bankers will want to see at least one budget, especially if you need to borrow money,” he said.
If freelancing is your only source of income, it is essential that you budget for both your personal and business expenses.
For creators like Krupa and Jony, freelancing is a secondary source of income, yet they find it extremely helpful to budget each month.
Jony’s freelance income comes from being a TikTok content creator and most of her money comes from sponsorship and promotional deals with brands, though these can be sporadic.
“With the uncertainty of clients and deals…having a budget definitely helps me to be smart when I allocate my money,” Jony said.
For Krupa, having a budget means spending wisely.
“I always make sure I do a stock take and have money in the surplus account,” she said.
Set financial goals:
Set yourself some achievable financial goals. These can range from something big like buying a house or a car, to something small like buying yourself a new gadget or something that will help you develop your business.
According to Shaun, setting up a business plan can help freelancers establish a strong foundation for their financial goals. It helps them understand the who, what, and why of their business and make informed decisions.
Both Krupa and Jony are working towards some big goals and freelancing is helping them get there.
Krupa said she wants to take Cakes by Kaptured full time so she can generate enough capital and fund other business projects.
Jony and her husband, on the other hand are saving for their first home.
However, Jony said, “Start small and have a feel of the freelance environment before you create any big financial goals.”
Shaun believes budgeting is at the crux of any kind of financial goals a freelancer wants to achieve.
Lastly, don’t be afraid to seek help:
Being a freelancer is not the same as turning up to a 9 – 5 job and working for someone else.
“Do your research and complete a business plan for the new venture … it gets you thinking about the different aspects involved with starting a business and being a business owner,” Shaun said.
There is no single formula to having a successful freelancing career other than having a good plan in place for your vision.
According to Shaun, speaking to professionals like bookkeepers, accountants and other business owners can help you see who they work with and how they do things.
He said that you can also reach out to friends and family for honest advice.
Lastly, make sure you understand the market you are getting into and how you can stand out.
“You wouldn’t start a building company if you don’t know how to build!” Shaun said.