Must-Have Tools to Master Your Freelancing Finances
By: Karen Cherry
Tags: Entrepreneurship, Freelancing, Founders, Home Business, Side Hustle

Must-Have Tools to Master Your Freelancing Finances

For many of us, freelancing equals freedom; freedom to set your own hours, freedom to choose your work, your clients, even your location.

But, as anyone who’s swapped the 9-to-5 for freelancing will tell you, with freedom comes new (and annoying) responsibilities. Like looking after your own IT needs, hunting for customers and paying the right amount of tax.

Yep tax. Tax is one of the not-fun parts of freelancing, along with its totally un-sexy cousin, bookkeeping.

Bookkeeping— keeping track of what you earn and what you spend — is, for most of us, an irksome task, something we prefer to avoid. But for anyone who earns a living as an independent operator, it’s a necessary evil. If you don’t keep track of your freelancing finances, tax time is going to suck extra hard.

At tax time you need to know exactly how much money you have earned from your freelancing activities, and how much you have spent to earn it.

If you report the wrong amount you will either pay too much tax or be breaking the law. If you don’t have good records of the money you have spent you might miss out on valuable tax deductions.

Tax is, arguably the most important reason to keep your freelancing finances organised. But there are other reasons too. If you don’t have good financial records you won’t know how profitable your business is. This, in turn, robs you of the opportunity to make better decisions. And if your finances are really in a mess you might not even realise that your business is in trouble, until it is too late!

These are the five tools that will help you get your freelancing finances sorted, so you can sleep soundly and feel confident and in control.

Photo by BRUNO EMMANUELLE on Unsplash

1. A Dedicated Bank Account

You need a dedicated bank account for your freelancing activities. It should be completely separate from your personal money. Deposit all your freelancing revenue into the dedicated account and use it to pay all your expenses. A debit card linked to the account is a convenient way to pay for expenses like subscriptions and website fees.

You don’t need a special ‘business’ account if you are new to freelancing, just a new, separate account in your own name.

Of course you will want to use your freelancing income for personal needs. The best way to do this is to withdraw money from the dedicated account and deposit it straight to your personal account. Don’t use a debit/credit card attached to your ‘business’ account to directly purchase anything that is not related to your freelancing. If you do so, tax time will become a lot more complicated than it needs to be.

Keeping your personal and business accounts separate is the easiest and most powerful way to simplify your freelancing finances.

2. A Killer Invoice Template

Invoices are a record of who you worked for, what you did for them, what they were supposed to pay, and when. Badly made invoices are annoying for your customers and are less likely to be paid on time (or at all!).

A good invoice template has

clearly communicated expectations for payment,

easy-to-follow instructions for how your customers should pay and,

information needed to meet your government and tax obligations.

A great-looking invoice template can also give you a feeling of confidence and authority… a crappy black and white Microsoft word document is no way to ask for payment!

If you want your customers to pay by credit card, create your invoices in Stripe or PayPal. Both platforms have easy-to-customise invoice templates and invoice management dashboards.

Photo by Carlos Muza on Unsplash

3. A Simple Spreadsheet

Keep track of the money you earn and spend using a spreadsheet.

You will outgrow spreadsheets as a bookkeeping tool eventually, but they are the perfect solution for new freelancers.

In your spreadsheet, enter the date, the amount and the description (or invoice number) of each payment that comes into and goes out of your bank account. Put the amounts going into your business and the amounts going out in different columns or even on different worksheets (tabs) of the spreadsheet so that they are easy to add up.

You can also use a spreadsheet to keep track of debtors (customers who owe you money) and tax obligations.

Set the spreadsheet up so you can easily calculate;

the amount of money you have earned (revenue) in a certain period, such as a month or a year.

the amount of money you have spent on different types of expenses, such as office expenses, computer equipment, website hosting.

Note that you also need to keep copies of receipts and other proofs of purchase as well as entering the amounts into a spreadsheet.

4. Obsessively Organised Folders

Tool number four — obsessively organised folders —is almost too simple to be called a tool. But don’t overlook the power of a good filing system.

Having to keep track of money is onerous enough without constantly losing files and documents. A well-set-up group of folders makes things easy to find, which keeps stress levels under control.

So channel your inner neat-freak and create a beautifully structured, numerically ordered folder system.

Easy-to-find records equals happier freelancers. Screenshot by author

Suggested folders:

Invoices. Use subfolders for templates, unpaid invoices and paid invoices. It’s also a great idea to create new folders for records from previous financial years so it’s easier to find current information.

Receipts. Keep receipts from purchases you have made. You need these to be able to legally claim tax deductions.

Bookkeeping spreadsheets. If you’re an offline-type-of person, keep your Excel spreadsheet files organised in a folder on your device. If you’re a Google Sheets user then use an offline folder to house your downloaded backups (you do make offline backups, don’t you?!)

Bank statements. Okay, okay, downloading bank statements is so last-decade. But if your bank is anything like mine, then getting copies of years-past statements is annoyingly difficult. Tax rules usually require you to hang on to financial records for many years, so it’s prudent to download and keep bank statements offline.

Business registration documents. Keep trademark records, business registrations, licence numbers together in a folder so they are easy to find.

Tax records. File documents that you sent to the tax office and any they sent to you in their own special folder.

It goes without saying that all important documents should be backed up to the cloud or to a separate hard drive (ideally both).

5. A Vision Board

Just kiddin’, a vision board might have pretty pictures on it but it will NOT help you get your finances sorted.

However, do keep some ‘white space’ in your schedule. White space is time you haven’t allocated for any particular task.

Every week or two, use the white space in your schedule to think about your freelancing money situation:

Are you making as much money as you want?

Are you focusing on the most profitable activities?

Is your spending under control?

When your white space can’t accommodate creative or strategic thinking, use it for the boring, mundane tasks associated with money management instead. Like getting your bookkeeping spreadsheet up to date.

No excuses!