After working all day on my business taxes (year-end and fourth quarter…I need a mocha!), my thoughts are firmly stuck in the financial realm. So let’s stick with that topic and talk about some tips for managing your freelance finances. Some of these are US-specific and some apply worldwide, so especially if you’re an overseas reader, feel free to contribute your own tips too!
- Have a business bank account and business debit card. Your business and personal finances should be completely separate, and the debit card statements save you from dealing with a shoebox full of receipts at the end of the year.
- I posted this one on Twitter earlier today. Set up a business savings account. Every time you receive a payment from a client, immediately transfer at least 30% of the payment into the savings account (the exact amount depends on your tax bracket, retirement goals, etc.). Use the saved funds to pay your taxes, fund your retirement account, etc. Over the years, I’ve heard numerous freelancers lamenting “…made more money than I thought this year…owe $6,000 and I don’t know where that’s coming from…” This year-end downer can easily be avoided with the business savings account plan.
- Keep a running total of your receivables. Let’s say that your gross income goal is $6,000 per month. If you only have $4,000 in outstanding invoices, it’s time to get cracking; you can’t afford to be too picky about what you accept and what you decline. If you have $8,000 in outstanding invoices, it’s a good time to raise your rates, be choosier about what you accept, or work on some non-paying projects that interest you. I use an Excel spreadsheet for this task. Whenever I issue an invoice, I enter it into the Excel sheet and it is automatically added to my running total receivables.
- Set up a paid vacation account. Lots of translators insist that they can never take time off because if they don’t work, they don’t get paid. Part of the solution is to raise your rates so that you don’t have to be working all the time. The other part is to give yourself paid vacation. For example if you typically gross $1,500 per week and you want to take 4 weeks a year off, you need $6,000 in savings in order to pay yourself $1,500 per week off. Divided by the 48 weeks a year that you would be working, that’s $125 per week. Stash that amount in your paid vacation account and when your vacation time rolls around, you’re set!
- If you subcontracted more than $600 of work to anyone during the year, make sure to send that person/entity a 1099-MISC by January 31. I use FileTaxes.com to prepare these online and mail them to the recipients. My accountant recommends sending 1099s to both individuals and corporations.
- Within the limits of the law, deduct, deduct, deduct. I’ve been freelancing for 10 years and I’m still finding out about new deductions: this year’s discovery was the potential to deduct my daughter’s summer day camp costs (may apply to private babysitting too) under the Federal child care credit. Some restrictions apply: the child has to be under 13, sleepaway fees are not eligible, and if you are married, your spouse has to be employed. Plus, of course there’s a cap: you can probably claim only $3,000 per child or $6,000 total, and that includes work-related child care during the school year if you use any. Here’s the IRS page about this topic. And as always, ask your accountant!
I’ve been doing the running total thing ever since I started freelancing. I then recycle the file to state when I’ve billed the item and when I’ve been paid. That way I keep track of slow and fast payers amongst my clients. I’ve also recently decided to set up a vacation account and have been telling everyone around me about it. Everybdody thinks it’s a great idea, simple but effective.
We are always on the same page. How come? Oh yeah: Great minds thing alike :o) I just wrote something on the same vein for the NAJIT blog. This is a good complement. I will add this link to the comments. Great tips, Corine.
This information couldn’t have come at a better time! I just wrote yesterday about how, come this time of year, I realize how unorganized I am and I’ve decided to reconsider my organizational techniques in two main categories: finances and project management. Your financial tips have been very helpful! Thanks Corinne.
On a side note, I wanted to mention that I only learned of your blog a couple of days ago but I am looking forward to reading through it. I ordered and read your book at the beginning of last year and I began my freelance translation journey and it is still my go-to for any question I have!
About credit cards … there are lots of cards available now that offer decent ‘cash back’ incentives (and other perks). There are web sites that rate the various cards. Whether you use a separate cards for business and personal, it at least makes sense to use a card that returns something. Over a year’s time it might add up to a free vacation (as in my case) or just a little more money in your pocket. I recently (this month) researched cards and ended up getting a Chase Freedom card. There are other good ones too.
Thanks for that tip, it’s a great one! As you pointed out, why not get some returns if you are spending the money anyway. I’ll check out Chase Freedom because I have my business account with Chase (but it’s not a Freedom account!)
Thanks for these advices! Great tips! Great blog! Very useful!
Thank you, I’m glad you enjoyed the post!
Corinne, thank so much for this blog post. You offer some really great tips and reminders for anyone getting started in the business! I loved your suggestion to start a “business savings account” and a “vacation account,” too. I write a similar blog for mental health professionals just starting a private practice and see the similarities. Will share your advice with my readers and re-direct them to check your blog out, too!
Thanks Tamara! I really appreciate your comment and your willingness to cross freelance disciplines; I’d love to take a look at your blog too!
I particularly like the idea about the paid vacation account. That always seems to be last on the list (or on mine) – so I never get around to it. Good idea!
Thanks for your comment! I do think that too many translators use the “I can’t take time off because if I don’t work, I don’t get paid” line of reasoning, and the paid vacation account helps to eliminate it!
Interesting information I haven’t been through such information in a long time.
http://www.latitudeprime.com
Fund management is very important for every business to achieve success.
Great tips. Thanks for sharing.