The Ultimate Freelancing Guide

The Ultimate Freelancing Guide - How to Freelance
The Ultimate Freelancing Guide – How to Freelance

Hey freelancers, listen up! Ever wondered about the ins and outs of legally establishing your own business, setting a fair rate for your services, getting your taxes in order, and making smart investments for your retirement? Well, with the world rapidly moving towards the gig economy, more and more people are joining the freelance bandwagon each year. But here’s the catch: running a one-person business has its fair share of challenges and risks if handled incorrectly. So we created this comprehensive Freelancing Guide.

Now, where do you go for reliable information? Sure, the internet is flooded with freelancing advice, but let’s be honest, it’s all over the place and often unreliable. That’s why we stepped up and created the ultimate freelancer’s guide, your one-stop resource covering everything from choosing the proper business structure, scoring awesome gigs, tackling taxes like a pro, building long-term savings, and so much more.

We’ve done the legwork for you, sifting through hundreds of online resources and consulting various experts. So let’s dive right in! Just a heads-up, you might want to grab your laptop and settle in because we’ve got a lot of ground to cover.

01. What is freelancing?

Freelancing is a flexible way of working where people do project-based tasks for different clients and companies. It lets individuals use their skills in areas like creating content, developing apps, or teaching. Freelancers are self-employed and work independently, taking on projects instead of having a fixed job with one employer.

Types of Freelancers

  • Independent contractor: These individuals take on supplemental and contract work per-project basis. When people hear the word “freelance,” they often think of independent contractors.
  • Moonlighter: These individuals have a full-time job and also pursue a “side hustle.” For example, it could be a salaried engineer who takes on weekend consulting assignments or a teacher who tutors after school.
  • Diversified worker: These freelancers combine part-time jobs with at-will work, essentially being both traditional employees and freelancers. As on-demand service apps gain popularity, diversified workers are becoming more common. For instance, someone might work 20 hours per week as an office administrator and spend additional time delivering goods for services like uber eats and DoorDash.
  • Temporary worker: We are familiar with this group. Temporary workers either have a single traditional job or a contract position for a predetermined period, like a web designer who works for three months at a soon-to-launch startup.
  • Freelance business owner: Think of this as a freelancer who has expanded their business to meet growing demand. For example, a successful freelance dog walker might hire additional freelance dog walkers to handle the increased workload.

“The number of diversified U.S. workers has increased by three percentage points from 2021, with 17% of workers now seeking multiple sources of income from a combination of traditional employment and freelance work.”

Upwork Freelance Forward 2022

Types of Freelancing

INDUSTRYFREELANCE OPPORTUNITIES
AdministrativeVirtual assistant
Administrative support
Bookkeeping services
App DevelopmentNative app development
Web app development
Mobile game development
Chatbot development and design
ConsultingBusiness strategy and management
Business planning
Operations consulting
Pricing consulting
Human resources consulting
Virtual Assistant
E-LearningE-learning consulting
Instructional design
Graphic DesignBrand identity design
Digital illustration
Logo design
Print design
Packaging design
MiscellaneousInterpretation services
Career Coaching
IT Consulting
PhotographyProduct photography
Advertising photography
Photojournalism
Real estate photography
Wedding and portrait photography
Fashion photography
VideographySEO Specialist
Director
Producer
Video editing
Set design
Commercial Videography
Web DesignUser experience design (UX)
User interface design (UI)
Information architecture design (IA)
Web DevelopmentFront-end development
Back-end development
Full-stack development
Mobile web development
WritingCopywriting
Content writing
White paper and ebook writing
Technical writing
Managing editing
Proofreading
Translation
MarketingLife Coaching
Publicist
Email marketer
Social media marketer
Product marketer
Content marketer
Marketing strategist
types of freelancing table

02. Key Questions to Consider if Freelancing is Right for You

Key Questions to Consider if Freelancing is Right for You - Ultimate Freelancing Guide
Key Questions to Consider if Freelancing is Right for You

What are your reasons for considering freelancing?

Do you desire a schedule that offers more flexibility, or are you hoping to avoid a long and tiring commute? Are you seeking professional growth or looking for a change because you’re feeling bored in your current job?

Understanding your motivations for pursuing freelancing is crucial since it can sometimes be challenging. There are no absolute right or wrong answers. Still, it’s essential to discover what aligns with your personal needs, family situation, and career aspirations.

Are you ready to face discomfort?

Freelancing can be challenging. There may be times when you’re uncertain about your next payment or face rejection repeatedly. Understanding that these feelings are normal and part of the growth process is essential. Remember, if something doesn’t challenge you, it won’t change you.

Now, let’s discuss the type of work you would do as a freelancer. This can be a common hurdle for those who want to freelance. Initially, many people aren’t sure where to start. However, finding the answer can be simple. It may require asking a few questions yourself.

What are you good at?

What do others ask you to help them with?
Remember, I’m not asking if you’re an expert in something. Becoming an expert takes time. The critical question is whether you’re willing to learn and grow in that area.

In 2022, nearly 31 million professionals, which is about 51% of all freelancers, offered knowledge services such as computer programming, marketing, IT, and business consulting.

What brings you joy?

Not every moment will be enjoyable, but there’s usually a skill or profession that brings you satisfaction. What accomplishments make you feel good? What are you proud to share with your loved ones? This is likely an area where you can excel as a freelancer.

03. The Pros and Cons of Freelancing

Working as a freelancer has its advantages and disadvantages. Regardless of how well it suits you or the nature of your work. It’s essential to consider these factors carefully before starting a freelance career.

The benefits of freelancing

In the past, freelancing was seen as something people did later in their careers, but now more and more people are choosing it as their main job. This shift is driven mainly by millennials, who are more likely to freelance than other age groups. Even some older people, around 30% of those aged 55 and over, do freelancing to save for retirement or keep themselves busy.

Freelancers are attracted to this type of work for several reasons:

  • You have control: As a freelancer, you’re the boss. You get to decide your schedule, set your rates, and choose the clients or projects you want to work on. You have the freedom to work in your pajamas or take an extended vacation whenever you desire.
  • Higher earning potential: Freelancing offers the opportunity to earn more money. You have the flexibility to set your own rates and decide how often you want to work. The potential for higher income depends on the rates you charge and the work you do.
  • Flexible schedule: Freelancing allows you to create a plan and work at your own pace. You can choose when to take on new tasks, giving you more time for the things you enjoy. Flexibility is the number one reason people choose freelancing.
  • Fewer working hours: Freelancers often work less than the standard 40-hour work week, averaging around 36 hours. This means you have more time for yourself and other activities.
  • Work from anywhere: Freelancers have the freedom to work from different locations, like their home office, coffee shops, or co-working spaces. You’re not confined to a traditional office cubicle. Around 73% of freelancers say the ability to work anywhere is one of the main reasons they choose this path.
  • Tax deductions: Freelancers have more expenses compared to regular employees, such as business cards, travel, equipment, and more. The good news is that you can deduct these expenses from your taxes. You can also deduct costs related to freelance employees, business loan interest, a portion of your home office expenses, depreciation, and homeowner’s taxes and insurance. By keeping careful records of these expenses, you can save a significant amount of money when it’s time to pay your taxes.

Freelancing offers many benefits, and it’s becoming an attractive option for many people who value flexibility, fewer working hours, the ability to work from anywhere, and potential tax deductions.

The drawbacks of freelancing

If you’re a self-motivated person who craves creative freedom, full-time freelancing might be a good fit for you. However, it’s essential to be aware of the challenges and potential problems before making the commitment.

  • You’re in charge: As a freelancer, you must make all the decisions and handle all the work. You are not just an employee but the entire business, responsible for tasks like finding clients and promoting your services.
  • Potential work-life balance challenges: Freelancing introduces uncertainties, especially regarding income stability. This can impact the desired work-life balance. Some individuals value stability and predictability in their careers, even if it means a long commute or a less flexible schedule.
  • Motivations and barriers: The main motivations for freelancing are flexibility, freedom, and earning potential. However, income predictability, finding work, and benefits are significant barriers.
  • Job security and income uncertainty: Unlike traditional employees, freelancers don’t have guaranteed job security or a steady income. Your workload can be inconsistent, and finding work becomes even more challenging during economic downturns. It’s advisable to have multiple clients to reduce dependency on a single source of income. Managing your monthly budget can be difficult due to the irregularity of income. This unpredictability is a concern for many freelancers.
  • Not all hours are billable: While full-time employees get paid for every hour they work, freelancers don’t have the same advantage. You’ll spend significant time managing clients, searching for new projects, and handling billing, without getting paid for those tasks. It’s important to understand that not all the time you invest will directly translate into income.
  • Lack of employer benefits: Unlike traditional employees, freelancers are responsible for their own benefits. Health insurance, for example, can be costly as you must find and pay for coverage independently. You won’t receive paid sick leave or vacation days either. If you’re unable to work for a day, you won’t earn any money, which can be frustrating.
  • Increased financial responsibilities: Freelancers need to handle various financial aspects of their business. It’s not just about taxes; you’ll also need to learn about accounting, billing, licensing, and contracts. Managing these extra tasks alongside your freelance projects can be challenging, primarily when they compete for your time during working hours.

If you’re undeterred by these challenges, read on for tips on how to set up your freelance business successfully.

04. Getting Started as a Freelancer

Getting Started as a Freelancer - The Ultimate Guide to Freelancing
Getting Started as a Freelancer

To embark on your freelancing journey successfully, laying a solid foundation for your business is crucial. This involves understanding your goals and establishing your brand identity.

Setting up your business helps attract clients and provides clarity and purpose when encountering challenges or uncertainty. Here are some key points to ensure your freelance business’s long-term survival.

Building a Brand

Creating a personal brand is essential for establishing yourself as a reputable freelancer. It helps you showcase your expertise and leaves a lasting impression on clients. You can use tools like Canva or seek help from professionals to design your brand identity.

Business Name

Having a memorable business name is essential as part of your personal brand. You can use your name or choose a unique name representing your business.

Website

Having a website is essential for freelancers. It acts as your online identity, allowing you to showcase your work, attract clients, and establish credibility. You can display your business name, logo, portfolio, testimonials, and services with a website. It’s crucial if you work with remote clients.

Consistency is key in branding. Make sure your website domain and social media handles match your business name. This makes it easier for clients to find you online. You can also integrate your work samples into your website for easy viewing.

A well-designed website helps you create a strong online presence, attract clients, and show professionalism. Take the time to build a website that represents your skills and expertise. Use it as a powerful marketing tool to stand out in the freelance market.

Creating a Portfolio

As a freelancer, having a portfolio of your work is crucial. It allows potential clients to see your skills and helps them visualize how you can contribute to their projects. While strong copy and testimonials are helpful, portfolios showcase your work and save time by ensuring clients are a good fit before scheduling a call.

Curating your portfolio and including your best work demonstrating various skills and clients is essential. You don’t need to showcase everything you’ve done.

There are various ways to display your portfolio, such as using Dropbox, Google Drive, or including links on your website. Additionally, there are third-party portfolio sites available for different professions:

  • Contently: Ideal for writers, journalists, and content creators.
  • PortfolioBox: Suitable for designers, photographers, artists, and more.
  • CarbonMade: Designed for illustrators, animators, architects, and more.
  • Behance: Great for graphic designers, illustrators, UI/UX designers, and more.
  • Journo Portfolio: Specifically tailored for journalists and writers.

These platforms can help you effectively present your work and attract potential clients in your respective field.

Social Media

It’s crucial to align your social media accounts with your personal branding. You don’t have to be active on every platform, as each has its benefits and purpose.

For example, you can use Twitter to share your portfolio and connect with peers and potential clients. LinkedIn is an excellent platform for showcasing your professional experience and building valuable connections. Facebook allows you to join relevant groups, and Instagram is useful for sharing videos and photos.

There are other places where your personal brand should shine as well. Business cards can be helpful if you work locally or attend networking events. Websites like Vistaprint or Moo make it easy to create professional-looking print materials. Your brand should also be reflected in your proposals, invoices, contracts, and any other materials you send to clients.

A clean and consistent brand helps establish your authority and professionalism, making you a trusted freelancer in the eyes of others. Focusing on this aspect can strengthen your position and attract more opportunities.

05. How to Run a Freelance Business

Setting up your freelance business is essential before you start taking on jobs and earning money. This involves knowing what you’re doing and how you want to present yourself to clients.

Taking care of the less glamorous aspects of freelancing, such as taxes, contracts, and retirement benefits, may not be the most exciting part, but they are absolutely crucial. Navigating these areas effectively is essential to ensure your success as a freelancer.

Business structure and registration

If you’re serious about freelancing long-term, setting up your business properly is essential instead of just reporting your freelance income on your personal taxes.

Registering your business has several benefits. It protects you from personal liability, offers tax advantages, and adds credibility to your work.

Before registering, you’ll need to choose the proper business structure. The two common options are sole proprietorship (SP) and limited liability company (LLC).

An SP is more straightforward and involves less paperwork, suitable for freelancers who take on projects occasionally. An LLC might be better if you work full-time and collaborate with larger companies. It requires more paperwork and expenses but protects your personal assets.

Once you’ve decided on the structure, you can register your business. If you go for an LLC, the registration process includes registering your business name. This ensures you won’t face legal issues for using someone else’s business name. 

Creating a fictitious business name called a DBA (doing business as) is common for sole proprietors. It allows you to operate under a different name and open a separate business bank account for better expense management. You can register a DBA by contacting your county clerk, but remember that requirements and fees vary by state.

For more detailed information on state-specific requirements, you can refer to the resources provided by the Small Business Administration.

Setting Up Your Workspace

Once you’ve established your online presence, it’s time to think about your physical workspace. Where you work can significantly impact your productivity, focus, and motivation as a freelancer. Consider these factors when deciding on your work environment.

Working from home is a popular choice for many freelancers due to its convenience, cost-effectiveness, and proximity to family. A dedicated home office is ideal for maintaining a work-life balance. Still, other areas like the dinner table, bed, or couch can also be utilized. This article provides helpful insights on creating an effective home office.

If working from home isn’t feasible for you, don’t worry. Many modern workspaces are remote-friendly and suitable for freelancers. Co-working spaces are available in various cities, providing shared desks, studios, and communal areas. These spaces offer a professional environment and opportunities to network with other freelancers and potential clients.

If your budget doesn’t allow for a co-working space, consider alternative options like local coffee shops, cafes, or libraries. Whatever space you choose, ensure it is free from distractions and provides conducive working conditions.

06. How to Find Freelance Jobs

How to Find Freelance Jobs - Freelancing Master Guide
How to Find Freelance Jobs

When you begin your freelance career, most of your daily routine will revolve around searching for jobs and promoting yourself. Establishing your skills, services, and reputation among clients takes time.

During this initial phase, you’ll need to invest a lot of effort into applying for opportunities, reaching out to potential clients, and building awareness about your work.

Make sure to inform your friends, family, and professional network about your freelance business. Even if they don’t currently require freelance services, they may remember your name when someone asks for a recommendation. The more people who are aware of your business, the greater the chances of receiving referrals.

Join freelance job sites.

Freelance job platforms provide you with opportunities to find and apply for projects posted by clients. They also offer an additional online space to showcase and promote your services.

Here are a few popular job sites where you can create a profile and explore available gigs:

Stay active on social media, like LinkedIn.

Start by following and connecting with freelancers, influencers, and potential clients on platforms like Twitter and LinkedIn. Show your interest by engaging with their posts, whether by asking questions or sharing their content with your own network. It’s amazing how many freelancers have discovered work opportunities simply by expressing interest in what editors or project managers share on social media.

Proposals

Consider the flood of unwanted emails and phone calls from people trying to sell you things. Even if their offering could benefit you, the intrusion is bothersome, and you likely ignore the message.

The same applies to proposals. Spamming your portfolio to random recipients or sending incomplete project ideas to unfamiliar individuals isn’t the best approach to selling your services. Before submitting an idea to a client, take the time to understand their goals and challenges. You can do this by meeting them for coffee or scheduling a brief phone call.

Once you have that understanding, ask if they’d be interested in seeing your ideas that could help their business. If they express interest, it’s time to create a digital proposal. Include the following:

  • Approach: State the project’s goals and explain how achieving them will benefit the client’s business. Focus on addressing their needs and discuss your plan to tackle these objectives.
  • Timeline: Clearly outline what will be delivered, when it will be delivered, and how. Don’t forget to allocate time for revisions.
  • Budget: While we’ll cover pricing in the next section, it’s essential to be transparent with clients about costs. Clients don’t want unexpected fees after signing a contract, so clearly communicate the payment and provide a breakdown of the costs.
  • Cover letter: Use this opportunity to sell yourself. Explain why you’re the most qualified person for the job. Briefly describe two to three similar projects you’ve worked on, including the goals, how you achieved them, and any measurable results. Treat it more like a case study than a resume.

Finally, follow up. Suppose you’ve had a conversation with the potential client, and they have agreed to review your proposal. In that case, it’s perfectly acceptable to check in after 10-14 days (preferably by phone or in person) to understand their decision and gather feedback on why they chose or declined your services.

Ask for Referrals and Testimonials

Seeking referrals and testimonials can significantly enhance your freelance career. Don’t hesitate to approach individuals in your personal or professional network, such as professors, past employers, colleagues, or mentors, who can speak to your skills and work ethic. Request reviews on platforms like LinkedIn and consider displaying them on your website to showcase your abilities.

Word of Mouth referrals 

Word-of-mouth recommendations hold tremendous value in the freelance world. While it may take time to establish a strong reputation that prompts clients to refer you to others, you can kickstart the process with your initial freelance assignment. Consistently deliver exceptional work on time, and express gratitude to clients who help spread the word about your services. Utilize project management tools to track and acknowledge their efforts, nurturing stronger relationships and encouraging further referrals.

07. Setting your Freelance Rate

When it comes to pricing your freelance services, there are different approaches to consider. Should you charge by the hour or set a rate for each project? Is it wise to lower your rates to attract more clients?

Determining the right pricing strategy for your freelancing business can be challenging, and there’s no universal answer. Understanding different pricing methods and structures is essential before providing a quote or billing a client. Taking the time to familiarize yourself with these considerations will help you make informed decisions about your pricing.

Pricing Methodology

When it comes to pricing your freelance services, there are different approaches you can consider. Common pricing methodologies include cost-plus, market-based, and value-driven pricing. Your chosen method will determine whether you charge by the hour, month, or project.

One mistake many freelancers make is basing their rates solely on their previous full-time salary. While it can provide a starting point, it doesn’t account for additional expenses like taxes, health insurance, materials, and travel that you must cover on your own. Taking these overhead costs into consideration is known as cost-plus pricing.

Cost-Plus Pricing

Cost-plus pricing involves calculating the expenses required to complete a project and adding a 10-30% profit margin. This pricing approach works well for artists and freelancers who use physical materials and clearly understand the costs involved in delivering a project or service.

However, it can be more challenging for professionals like writers, designers, and developers to determine costs accurately, especially when time is a significant factor.

Market Rate Pricing

Market-based pricing is a more straightforward approach. However, it comes with risks. You determine your rates by researching what others in your field are charging, which sets the market price. If you offer more services, you charge more than the market rate. If you provide fewer services, your rates will be lower.

Remember that with the growing number of freelancers, especially those living in countries with lower living expenses, you might face competition from others offering lower prices if you strictly stick to market rates. It’s better to use market prices as a reference rather than a strict rule.

Value-driven pricing

One way to determine your pricing is through value-driven pricing. Instead of focusing on production costs, you set your fee based on the value your work brings to your clients. To do this, explain to your clients how each deliverable will directly benefit their business and assign a fixed price rather than calculating the hours it will take to complete the project.

Putting a price tag on abstract concepts like “value” may seem challenging. However, by emphasizing the concrete impact of your work on your client’s business, you can establish the value and set a suitable price.

Another approach is to determine your rates based on the perceived worth of your work. This means that your pricing may vary depending on the client and the type of project you’re working on.

For example, producing a promotional video for a well-known national brand may hold more value than creating a video for a small local business. You might charge a higher fee for the former. It doesn’t mean that one company is inherently more valuable than the other. However, it lets you consider their budget and the project’s potential impact.

How should I charge clients?

When it comes to charging clients, there are two common approaches: hourly rates and fixed prices. The choice between them depends on the nature of your work and your personal preference.

Charging by the hour ensures that you are compensated for all the time you spend on a project. At the same time, a fixed price guarantees a specific payment amount. Hourly rates focus on the value of your time, whereas fixed pricing emphasizes the value you provide to your clients.

Should I display my freelancing rates on my website?

Deciding whether to showcase your rates on your website depends on your comfort level. Some freelancers choose to publish their prices as a way to convey the value they offer. This strategy helps filter out clients who cannot afford their services.

On the other hand, some freelancers prefer not to disclose their rates upfront, as it allows them to have a conversation with potential clients. Keeping your prices private also provides flexibility to adjust them when necessary.

08. Managing Freelance Jobs and Clients

Managing Freelance Jobs and Clients - Freelancer Complete Guide
Managing Freelance Jobs and Clients

When you’re freelancing, you have the freedom to be in control. You can create your own schedule, set deadlines, and take responsibility when things don’t go as planned.

To avoid problems and impress your clients, it’s essential to have a reliable project management process in place. This will give you confidence and organization for each project and show professionalism to your clients.

The first step is to find a way to keep track of deadlines, meetings, events, and important dates. You can use a calendar, a bullet journal, or an online planner that suits your preference.

In addition to your calendar, it’s helpful to use project management or to-do list tools (or a combination of both) to stay on track and meet deadlines. Based on a survey conducted with a large group of freelancers, the top five platforms they rely on for managing their work include:

Finally, decide how to communicate project information and updates with your clients. The frequency of communication is up to you and may require some experimentation to find the right balance.

Remember, as a freelancer, your goal is to deliver excellent work and satisfy your clients. Happy clients can lead to referrals and more work opportunities.

Here are a few additional tips for working with clients:

Establish clear expectations from the start.

When working with a new client, promptly address any doubts or queries. Take the initiative to communicate project details, your availability, deadlines, and payment terms.

If you feel like you’re sharing too much information, it’s probably just the right amount.

Document everything

Whether you’re communicating with clients via email, phone, or messaging platforms like Slack, ensure that all decisions and expectations are recorded in official documents. This includes proposals, contracts, and invoices. This adds professionalism to your freelance business and serves as a formal record in case of any issues.

Be cautious of client “red flags.” 

Suppose a client asks about your availability and payment in a way that makes you uneasy. In that case, it’s essential to trust your gut and decide if you want to work with them. You have the right to decline the offer if it doesn’t feel right to you.

Examples of red flag questions include “Can I reach you at any time?” or “Do I still have to pay if I don’t like the work?” These signs might indicate that the client isn’t a suitable fit for your business.

09. Getting paid as a Freelancer

When you leave the traditional 9-to-5 job behind and become a freelancer, you also say goodbye to the steady paycheck. Freelancing offers the potential to earn more money on your own terms, but getting paid can become a job in itself.

Don’t hesitate to ask for a deposit from your clients. If you’re offered a three-month project, it’s understandable that you can’t rely on a single payment at the end.

Be upfront with your clients and ensure the payment terms are clearly stated in the contract before you start working.

How to invoice

Before you can get paid, it’s essential to establish clear billing policies. These rules should be outlined in both your initial freelance contract and your invoice. They include details on how you’ll be paid, when payment is expected, and any penalties for late payments.

Next, let’s talk about creating your invoice. When it comes to billing, investing in accounting software can give your business a professional touch (no offense to Microsoft Word or Google Docs). Here are some recommended services, both free and subscription-based:

  • FreshBooks: With FreshBooks, you can easily track who has viewed your invoices, so you’ll know if someone claims they didn’t receive it. It also supports billing in different currencies if you work internationally.
  • PayPal: If you’re already using PayPal for receiving payments, you may not need a separate invoicing service. PayPal allows you to send and manage invoices directly from your existing account.
  • Wave: Wave offers a comprehensive suite of billing services for freelancers. You can send and organize invoices, receive payments, set up payment reminders, and track your finances.

These tools can streamline your invoicing process and help you maintain a professional image while managing your freelance business. Here are some additional tips:

  • Bill at least half upfront: It’s common to ask for this deposit before starting any work. It shows trust between you and the client and provides you with some initial funds to begin the project.
  • Make your invoice clear and detailed: Include all the pricing, due dates, and payment terms on the invoice. Leave no room for confusion or misunderstandings. This way, you’re prepared if a client tries to avoid paying what they owe.
  • Bill on time: according to your agreed-upon terms, stick to your word if you’ve stated that you’ll bill weekly or a certain number of days after completing the project. Being consistent demonstrates professionalism and reliability, and it ensures that clients fulfill their payment obligations without delay.
  • Offer various payment options: The tools mentioned earlier can handle different digital payment methods, but it’s also a good idea to be open to other forms of payment. Clearly display your business address or P.O. Box on the invoice, allowing clients to send checks if necessary. Accepting multiple payment options eliminates any excuses from clients who claim they can’t pay.

Remember, establishing transparent payment practices protects you and your clients and helps maintain a trustworthy business relationship.

What to do if you’re not getting paid

What if a payment is late or doesn’t come through at all? If the payment is overdue and your client hasn’t met the agreed-upon deadlines, it’s crucial to take action. Pause your work and kindly inform your client that you’ll need to receive payment before proceeding with the next phase. If your client still doesn’t pay and stops responding, you may need to involve a lawyer by sending a legal letter.

In the event that legal action becomes necessary, you have a couple of options. You can hire a collection agency to help you recover the payment or take your client to small claims court. Before pursuing a legal route, it’s essential to do your research. Understand the potential costs and time involved in the legal process so you’re well-informed before filing a lawsuit.

10. How Freelancers Can Manage Their Finances

How Freelancers can Manage their Finances - Freelance guide
How Freelancers Can Manage Their Finances

Although freelancing offers great freedom, it also demands responsible management of your personal and business finances.

It’s crucial to avoid relying on credit cards to sustain your business or cover daily personal expenses, as this situation is more common than you may realize.

Expenses

For new freelancers, it’s crucial to keep track of every single purchase. This is important because you no longer have a regular salary, and it’s necessary to develop the habit of monitoring your expenses and sticking to a monthly budget.

Tracking your expenses is essential for making informed decisions about your hourly rate and determining how much money you should set aside from each paycheck for taxes, retirement, and other expenses.

While it may seem like a daunting task, there are helpful tools available. Shoeboxed, for instance, lets you take photos of your receipts and store and organize them online. When tax season arrives, you can easily send your digital copies to the IRS or input them into popular tax software like QuickBooks.

Planning ahead

During your first year as a freelancer, it’s crucial to establish a budget. This budget should consist of three key components: revenue (the money you earn), personal expenses, and profit (income minus costs).

To create a projection for the upcoming year, look at your income from the first six months and choose the lowest monthly figure. While this represents a worst-case scenario, it will help you prepare for a slower month. If you end up earning more than expected, you’ll have extra money for savings.

By planning ahead in this way, you’ll also be ready to handle a cash flow emergency. For example, there may be times when you’ve completed work and invoiced for it but haven’t received payment yet (which can happen occasionally). Being prepared for such situations will ensure you can manage your finances effectively.

Credit and bank separation

Combining your personal and business checking accounts might seem convenient. Still, it can cause significant tax problems and make it difficult to track your personal and business expenses separately.

As a freelancer, setting up a dedicated business account as your primary work account is advisable. Use this account to receive payments and transfer a fixed salary, based on your budget projections, into your personal account regularly. This approach ensures you’re not mixing personal and business funds in small amounts. To effectively manage your finances, consider directing funds from your business account into separate accounts for tax payments, retirement savings, and emergency funds.

Similarly, avoid using your personal credit card for business purchases. Doing so will only complicate your tax calculations and make it harder to track your expenses accurately. Suppose you need a business credit card to support your business growth. In that case, linking it to your business bank account is recommended. This way, you can deduct the interest paid on the card during tax season.

11. How to Pay Taxes as a Freelancer

First of all, congratulations on your freelance income! Now, planning for your taxes before the tax season arrives is essential. To ensure you’re following the proper procedures, it’s advisable to consult a tax professional who can guide you through the specific laws and regulations in your country, state, and possibly county.

In the meantime, here are some general tips to help you prepare for your first tax season as a freelancer:

  • Set aside money for taxes after each payment. Treat it as if taxes are deducted from every invoice you receive, similar to how an employer withholds taxes. Suppose you’re freelancing in the United States. In that case, it’s recommended to save around 30% of your income to cover income tax, self-employment tax (15.3%), and any state or local taxes.
  • Consider different business types as your income grows. While many freelancers start as sole proprietors, as your earnings increase, it may be beneficial to explore other business structures. Different business types can impact your tax obligations and liability positively.
  • Maintain organized and easily accessible records. Keeping well-organized records of forms, invoices, and receipts will make it easier to complete your taxes. These records can also help you identify potential deductions for workplace expenses, continuing education, credit card interest, health insurance, mileage and travel expenses, and software costs.
  • Think about paying quarterly taxes. Some freelancers find it beneficial to make quarterly tax payments instead of paying a lump sum in April. By paying estimated tax amounts each quarter, you can avoid a significant financial burden and prevent late fees or interest charges.

Everyone’s tax situation is unique, so it’s essential to seek professional advice to ensure you’re meeting your specific tax requirements.

12. Managing the Less Exciting Side of Freelancing

Managing the Less Exciting Side of Freelancing
Managing the Less Exciting Side of Freelancing

When you work for an employer, they handle more than just taxes, like benefits and retirement savings. As a freelancer, you are responsible for setting up your own benefits and retirement plans, which requires some additional research. 

Setting Up Insurance

Having company-sponsored benefits is crucial, especially if your family relies on you or you have ongoing health issues.

If your spouse or domestic partner has insurance through their employer, it’s worth exploring their options. Usually, company-sponsored benefits are more affordable than individual plans directly from insurance providers. Even if your partner needs to pay a bit more to include you in an employee plus partner or employee plus family plan, it might be beneficial.

If you don’t have a partner or can’t join their benefits package, don’t worry. There are various plans and providers specifically designed for freelancers and self-employed individuals.

Here are some resources to consider:

Investing in Retirement

You can save for retirement even without an employer. Freelancers and self-employed individuals have similar options to those who work for a company, like the Roth IRA, SEP IRA, or self-employed 401(k). 

As a freelancer myself, I opened a Roth IRA and set up automatic deposits into the account. I worked with a personal wealth manager, but there are also tools and platforms available to assist you.

No matter how you choose to invest for retirement, starting early and being consistent with your contributions is essential. Your future self will appreciate it.

Conclusion

This ultimate guide to freelancing provides valuable information on the various aspects of pursuing this significant career path. However, it’s essential not to feel disheartened or overwhelmed.

In reality, freelancing follows a relatively straightforward process. Once you address inquiries regarding your personal brand, preferred work locations, job sources, and staying connected, you’ll be well on your way to success.

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