Great news for freelancers: you’re in high demand right now! Freelance work in almost any digital industry is in extremely high demand, and is available stateside too. Payroll company ADP.com reports that high growth is occurring in small and mid-sized businesses. These are the same companies that outsource the minutia so that in-house employees can focus on scaling. Unfortunately, going freelance isn’t an easy transition. Aside from quitting your job, with or without a safety net, you have to navigate the world of owning a business. As an independent contractor, you essentially run your own business.
If you want to grow your business, you need to figure out how to make your money work for you. That’s a challenge when you’re barely squeezing by. Don’t expect to grow by millions in the beginning, unless you have incredible luck, but these tips will help long-term freelancers grow responsibly.
Understanding the Concept of Escrow
When you’re buying a home, you put money into an escrow account that disperses the funds to where they need to go. The company will take funds from the buyer and the seller, then distribute what is needed to the agent and various others involved in the transaction. That money is there so it won’t get spent. It’s reserved for exactly what it’s being used for, and that’s how you should begin approaching your life if you can manage it.
Look at your finances for the year, calculating how much you’ll make and where it will go. Begin with your necessities, then add up miscellaneous items like entertainment or car repair. Try to bank the money you’re placing into escrow for these events into an interest bearing account. You’ll earn interest on whatever is there, and can pocket whatever you don’t spend.
Discovering Unexpected Budget Cuts
If you commute to a location for work, consider a carpool to cut gas costs. You may want to consider cutting either your land or mobile phone lines, depending on what suits the needs of your business best. Always go for the cheapest possible route, without expending too much of your time. Cutting out things like a morning Starbucks run puts even more money in your pocket. Consider it like interest returns on your money, and put those gains toward something profitable to you. Another obvious place for a budget cut is cutting your cable bill. Most places in the US have access to decent Internet and Netflix or Amazon, so take advantage of those sources for your entertainment.
Learn About Investing
Some basic education on the principles of investing will go a long way in building your finances. Freelancers are sometimes business-minded people looking to launch a company, sometimes just workers in transition. Investing in stocks, bonds and funds will help boost your savings. Try to make it a point to take some of your money each year and put it into an interest bearing account of some sort. Even if it’s a small amount like $5,000. It helps to start with anything and build on it with routine monthly payments.
Growing Your Tax Dollars
Hire a tax person. A good tax person can deduct their own costs from your taxes and essentially pay for themselves by finding you savings through deductions. There are a lot of complicated loopholes in tax law, and your tax person will know exactly how much is safe to deduct without triggering an audit from the IRS. In some cases, your tax person will even offer a defense for you in court if you are sued.
The purpose of hiring a good tax person is to get a larger return. They will also provide you with some idea on how to reinvest that return. If you own a home, for instance, pouring your return into the house is a good method to grow your cash reserves. You can also invest it in funds, or put it towards some of the expenses your business accumulates.