Over the last two years, I’ve steadily increased my side hustle income. Despite the fact that I’ve always been pretty good with my money, there were still a few things I had to learn along the way. Saving came very naturally for me, but you’ll soon find out that it was spending that I had a problem with.
Some people assume that if you still have a full–time job (like I still do), then spending your extra income isn’t a big deal. Well, I guess you could look at it that way, but don’t forget about taxes. In this post, I’ll share some tips and personal experiences to help you become better at managing your money as a freelancer.
Saving 25% for taxes
This should be obvious, but be sure to set aside 25% of your income for taxes. Some people don’t report their additional income, but that’s fraud. As soon as I got paid, I would put aside 25% into a separate account just for my tax bill. What made things tricky was the fact that I couldn’t automate those transfers. Make sure you’re on top of things!
Also note that if your tax bill comes in at more than $3,000, the CRA will expect you to start making quarterly payments (even before you file your taxes). As for registering for an HST # (in Ontario), you don’t formally have to do that until you reach $30,000 income.
You still need to budget
When dealing with freelance income, budgeting can be a bit tricky since you’ll never know exactly how much you’ll make each month. Since my side-hustle income was just extra cash, budgeting was easy for me: 25% for taxes, 25% for travel, 50% for savings.
Now that budget worked for me since it was additional income, but if you’re a full-time freelancer, you’re going to have a much more detailed budget. One trick to stay on budget is to use a prior month budget. Basically, you would create your monthly budget based on how much money you took in the previous month.
It’s okay to spend on yourself
You’ll notice that with my budget above, I was only setting aside 25% for myself towards travel. This worked at the beginning since I wasn’t making that much extra cash, so I thought it was a good amount to work with. As I started to earn more income, I realized I couldn’t keep dedicating 25% to travel (it was too much). Now I just dedicate 25% in general to spend on whatever I want.
Too often freelancers can get caught up on saving. This makes sense if you’re never sure when your next paycheque is going to come in, but if it’s just a side hustle, don’t be afraid to spend some money. For most people this won’t be a problem, but natural savers hate to spend money. It’s okay to spend! What’s the point of working freelance if you’re not going to spend any money?
Spend money to increase your productivity
When I started my blog, I did everything on my own. I spent countless hours trying to figure out what was the best free theme for my website. Let’s be realistic, I did everything on my own because I wanted to save money. As my website and brand started to scale up, I realized that I had to spend money to grow.
I eventually hired a web designer and started to pay for certain products or features that streamlined my workflow. I realized that it was an investment to spend that money instead of spending hours trying to do something on my own. Trust me, your time is valuable, so don’t be afraid to pay someone for their services.
Be smart about your money
This might contradict the above tip, but you still need to be lean when it comes to your money. I always assume that my freelance income could dry up at any moment, so I only spend what I have to. I’m picky about the services I use and only pay for them if I know I’m going to use them. If income ever becomes an issue, I could scale back and reduce my expenses.
With my blog, I always wanted it to pay for itself. I got lucky and it became “profitable” pretty fast. Startup costs aside, try to avoid funding your side projects with your personal savings.
Monitor your expenses and income
Even though the goal of my blog was to make money, I never thought to track my expenses. Tracking expenses helps you stay on budget, but more importantly, there are a lot of things you can claim as business expenses. Meals, entertainment, advertising, office expenses, mobile and internet expenses are all things you can claim on your taxes and you don’t even need to register as a business.
You’ll obviously want to know how much money you’re making, so you’ll want to track your income. This will also keep you up to date with who owes you money. I personally prefer to do everything in Google Sheets, but I’ve seriously considered switching over to FreshBooks. Most of my full-time freelance friends use FreshBooks and highly recommend it.
Network like a beast
This is going to sound weird, but I never realized that I was a natural networker until I started blogging. Most people understand that networking is required to grow, but do you really know what it means to network? Many people will network hoping to get something out of it, but when I network, I make sure people know what I can provide them.
I try to stay connected with as many people as possible and am happy to make connections when I can. Many people end up returning the favour which has led to many paid gigs. Networking can be tough, especially if you’re an introvert. But you’re going to have to do it if you want your business to grow.
All of the above tips took me some time to learn and implement so don’t feel bad if you’re not on top of everything right away. Managing your money as a freelancer can be tricky at times, but just stay on top of things and you’ll be just fine.
Barry Choi is a personal finance and budget travel expert at @barrychoi. He has been quoted in The Financial Post, The Toronto Star and more. You can follow him on Twitter:
This article originally appeared on Moneywehave.com