Anyone who runs a business knows that you’re supposed to keep your business and personal finances separate. But if you’re a freelancer or independent professional, then the lines between personal affairs and business can get a little blurry.
You are your own business, and managing your finances can be as tricky as running a brick-and-mortar firm. After all, you spend so much time chasing leads and working on projects, and you invest your hard-earned cash back into yourself.
If you’re an independent professional, it pays to get smart about your finances. Chances are you’ve crossed paths with a brilliant colleague who has made a killing working independently, but for some reason are still sloppy with their finances. While you can always hire financial advisors like accountants for GP, wouldn’t you rather know the tips and tricks yourself?
Things can get a little bit complicated if there’s no separation between personal and business finances. Here are a few strategies for managing your money:
1. Start a rainy day fund
It doesn’t matter if you earn a lot. If you still spend all of your money and set nothing aside, you’re setting yourself up for a financial future. Unlike salaried employees, independent professionals don’t have a regular paycheck to rely on. You only have your projects and commission work. But what will you do if there’s a downturn in business and the offers start to dry up?
You should have at least have a year’s worth of living expenses tucked away in a rainy day fund. Having emergency savings allows you to weather prolonged lulls in your employment. It also provides some buffer in case you have a financial emergency like medical bills or car repairs.
2. Pay the bills
A good reputation is the lifeblood of any independent professional, and you need to make sure all your actions only serve to bolster your reputation. One great way to do that is to pay all of your bills on time. Even if you’re running low on cash, it’s better to make the minimum payment on an invoice than missing a payment.
If your creditors notice that you’re missing your payments, they might not work with you in the future. If you have a good relationship with a creditor, you can negotiate a new payment structure until your situation improves.
Maintaining relationships only serves your business. Staying on top of debt and bill payments will help you build a stronger foundation for you and your clients.
3. Invest in your future
Many professionals invest in themselves so that they can provide better services to their clients. A new computer or camera can go a long way in securing new clients and keeping existing ones. But you should also start investing in your future.
Consider diversifying your savings into financial instruments like mutual bonds and stocks. If you are your own source of income, then you need to expand your options and invest in a wider range of opportunities. Maintaining a diversified portfolio allows for better long-term growth than if you have kept your money in a savings account.
These pointers will help you manage your money better. A diversified investment portfolio, emergency savings fund, and regular bill payments all help build a foundation of financial independence. Of course, these strategies are best combined with prudence and sensibility.
