How To Track Your Expenses and Keep Up with Your Taxes as A Freelancer
As a freelancer, your time, workload, income, expenses, and taxes are all yours to figure out and balance.
Unlike structured working environments in offices, firms, and companies, a freelancer encounters peculiar financial situations like irregular pay, separate taxing systems, international transfers, and all other extra charges.
These peculiarities make the need to monitor your finances even more important as a freelancer. The basic rule is to earn more than you spend or spend less than you earn.
To balance your financial books and keep afloat, you must learn how to track your income, expenses and keep up with your taxes. We have put together tips and tools to help you track your expenses and keep up with your taxes easily and efficiently.
Budgeting is simply planning how to and what to spend your money on. A fantastic budget also helps you keep track of your expenses. Drawing up a detailed budget of future expenses will help you set priorities for spending money.
Also, with a budget, you can be sure that you’re not spending more than you make. Make budgets yearly, quarterly, and monthly to get the best out of budgeting.
Include expenses like professional courses you’d love to take and tools to help you do a better job as a freelancer. A budget will only work if you make a good one and stick to it.
2. Plan out tax payments
Because you don’t have a boss that pays your taxes directly to the government, you are responsible for paying your taxes.
Depending on the country you work from, there are different tax payment systems for freelancers based on how much the freelancer makes in a month, quarter, or year. Planning out your taxes at the beginning of every month, quarter, or year puts you ahead in your finances.
Set a percentage of every earnings that go into the payment of taxes. Keep money for taxes aside first before making any other expenses. Pay taxes as soon as they’re due to avoid running into debt and going against the law.
3. Use software and applications
Technology has made everything simple and easy, including tracking your expenses.
Use accounting software and applications to keep a detailed track of everything you spend money on as a freelancer.
There are different applications and software for tracking your expenses, both personal and business, but a highly recommended one is a 1099 expense tracker for your business expenses.
A 1099 expense tracker, for example, keeps track of all your business expenses, as well as organizes your tax information and record. Tracking is as easy as spending a few minutes to input expenses on your phone with a 1099 expense tracker.
The tracker can help you organize receipts and categorize each expense. Most 1099 expense trackers are free or affordable to use.
1099 expense trackers help you get the lowest possible tax rate on your freelancing earnings. Other software and applications like Microsoft Excel Spreadsheet can also be used.
4. Categorize expenses
A good way to keep track of your expenses is to categorize expenses properly. Categorization should be based on level of importance, needs, or wants, whether it is an everyday expense or once a month expense, etc.
Categorization breaks down your expenses and shows you the areas you’re spending more money on and the items to cut down.
Make sure your categories are clear and alike, e.g., professional courses, stationery, etc. You can also have subcategories.
5. Create a different account for business and personal expenses
As a freelancer, it can be difficult to track your expenses when you mix your business and personal expenses. Business expenses include a subscription for work applications and tools, work-related trips, etc.,
While personal expenses include buying groceries and going on a date to a fancy restaurant. Separating these two is important for detailed bookkeeping.
A great way to keep track of your business and personal expenses separately is to pay yourself. After deducting business expenses and taxes, send the profit left to your account as your earnings.
You can always meet personal demands and expenses using the money you paid yourself and pay for business expenses with money set aside for that. Having separate bank accounts helps you achieve this.
6. Emergency fund
As a freelancer, you do not have the luxury of a steady cash flow, as some months are better than others. To help you keep afloat and monitor expenses, you have to create a savings system for the rainy days.
Have a stash of cash that you can survive on for at least three months of low earnings. These savings should be separated from your usual savings and investments and kept as emergency funds.
Creating a separate account for this purpose is advisable to ensure you don’t spend it until the actual rainy days. Even if you invest this money, invest in portfolios that can be easily liquidated.
Build your emergency fund by putting away little money each time you earn. Start small and build your emergency fund to 3-6 months’ worth of income.
7. Keep a record of receipts.
You can’t track your expenses if you don’t keep a record of them. Keep a detailed record of receipts. Keep physical receipts in a folder, according to their categories.
Save online receipts on your phone and take pictures of physical receipts if you’d rather have a digital record. Keep a record of every small and big purchase, including your cup of coffee every morning and the amount paid for gas.
With this record, you can analyze your accounts, keep track of your spending, and cut down on unnecessary expenses.
8. Request for bank statements
Request for a bank statement to see an overview of your cash flow. Create a system of yearly, quarterly, and monthly checks of account statements of your debit and credit cards.
Analyze your bank statements using records of receipts and invoices. Also, keep bank statements for future referral and tax records.
These tips and tools will help you meet your ultimate financial goal as a freelancer, which is to make more than you spend and spend less than you make.