Being an independent contractor is a lucrative career if you are good at managing your time, energy, and money. However, it can be chaotic if you aren’t used to working on multiple projects simultaneously. Independent contractors usually care for clients, invoices, bills, expenses, and income. It can get tedious managing such things alone. When managing your finances and taxes, some thorough research can help you stay up-to-date with bills while saving significant money. We have compiled six tips to help independent contractors manage their finances.
Six Tips to Help Independent Contractors Manage Their Finances
The gig economy can be a feast or famine situation for independent contractors. Some months, you may have a surplus of clients, while other times, you won’t have enough to pay the monthly bills. So, all independent contractors should prioritize saving enough to pay their bills.
There are a few things you need to guarantee that you save up enough with each paycheck. First, when your income exceeds your personal and business expenses, put that income aside in your savings account. It’s ideal for saving up at least enough money so that you will be comfortable during slow months. Remember that your savings should include health insurance, retirement plans, medical emergencies, and business-related expenses.
- Work management
Managing your clients and time is crucial while you are handling your finances. Whether you work alone or have a few employees, it is advisable to have a business banking account. Additionally, having a diverse client base is better than having one or two large clients because if one of them stops working with you, it will take a toll on your income.
- Tax returns
Independent contractors don’t have taxes deducted from their paychecks; they must pay them all year round. So, you should include 15.3% of your income into taxes, budget, and savings to ensure you never miss out on the tax returns benefits, or there might be penalties.
- Consultation & loans
Managing your finances as an independent contractor can be daunting and tedious. Consider getting professional consultation to create a proper structure around your finances. If you struggle to pay your bills and aren’t 100% sure you will have more work next month, look into independent contractor loans. Getting help instead of managing everything alone would help you save effort and money.
- Emergency savings
Life is as unpredictable as the income of independent contractors. Your savings should cover basic requirements for emergencies; home repairs, vehicle maintenance, retirement, unexpected medical emergencies, and utilities. By saving for the big things, you will save yourself from financial issues in the future.
- Your charges
Charging the right amount for your services can be a game changer. Keep the industry standards, skills, nature of your clients, and revenue in mind while you decide your charges. If you aren’t sure, you can consult with an advisor to help set up your contract.
The financial situation can be very unpredictable and daunting for independent contractors. Therefore, planning and saving from the get-go is advisable to ensure you aren’t strapped for cash later. Whether you are new to the field or have been working as an independent contractor for years, handling your finances is a big task that needs careful planning and resources. We hope this helps you analyze your finances and plan your savings accordingly.