Freelancing has become an attractive career choice for many workers worldwide due to the flexibility and autonomy it provides. While “gigs” and freelance work initially started as side jobs, many individuals have decided to pursue it as a full-time career.
In 2022, around 250,000 Canadians worked in the gig economy through various digital platforms. Changing labour demands and economic conditions have contributed to the increased number of gig workers.
While freelancing and gig work offer several benefits and liberties to workers, they also come with specific responsibilities, one of which is managing one’s finances. Here are some fundamental principles and aspects freelancers should consider when tackling their finances.
Budgeting
Freelance work can be inconsistent, especially if you’re new to the industry. For this reason, it’s essential to set a budget and avoid overspending.
Set aside an amount for your necessities, like food, water, overhead expenses, savings, and taxes. The rest of your earnings could go to leisure and non-essentials.
As you build your freelancing business and gain more experience and long-term clients, you can better understand your annual earnings. This knowledge helps you create a more reliable budget despite the inconsistencies of freelance work.
Tracking Income and Expenses
As a freelancer, it’s important to understand that you are running a business, and keeping track of your earnings and spending is essential. Creating a separate business bank account is best to ensure you don’t miss any critical transactions.
Make sure to keep a meticulous record of your receipts and invoices. These and other financial documents are essential when filing your taxes.
You can use accounting software to help with this task. If you need more assistance, you can consult or hire an accountant from a trusted firm like Faris CPA.
Building a Financial Safety Net
Freelancing could be a lucrative business, but inconsistent earnings are a reality in the industry. Therefore, freelancers and gig workers must set up and maintain an emergency fund.
Each time you get paid, set aside an amount for your emergency savings. This financial safety net can help you get by should you lose part of your income. Your emergency fund should cover at least three to six months of your regular expenses.
Tax Planning
If you work as a regular employee for a company, your employer usually files your taxes for you through deductions. However, if you work as a freelancer, you must do this task yourself.
You must file annual tax returns like all Canadian citizens, which you can accomplish online through the Canada Revenue Agency (CRA) website. The T4002 tax guide can point you to the necessary forms and requirements you need to fulfill.
Taxes can be challenging to navigate, especially if you’re new to freelancing. You can always consult an accountant or an experienced colleague to help you.
Good Financial Management for Freelancing Success
Entering the freelance industry provides a lot of freedom and potential for professional development. However, it also comes with significant responsibilities, especially in finances. Developing good financial management skills and habits allows you to create and maintain a stable career in the freelance industry.
