Article

How to build financial confidence: Tips for freelancers from freelancers

14 November 2022

4-minute read

Saving Plan Well How to

With fluctuating income, freelancers should learn how to budget so they can build financial confidence. (Credit: Shutterstock)

The unpredictable nature of freelance work can undermine your sense of financial confidence. Taking control of your finances and sharpening your financial management abilities will help you support yourself. It also allows you to focus more energy on clients and freelance jobs.

Many freelancers live from pay cheque to pay cheque, making personal financial management seem like just another thing to worry about. Here, three freelance professionals share how they built financial security to enjoy the full freedom and rewards of their careers.

Learn the basics

After a few years of full-time employment, Claire, a Chiang Mai-based freelance web designer, decided to try the freelance life. She quickly discovered she lacked the financial literacy skills to manage her growing business.

Claire recalls, "I felt lost financially. I did not know much about taxes, saving and cash flow. I felt unsure about my financial future."

She encourages freelancers to set aside time to learn the finance basics when running a business. "It can be daunting at first, and it can feel like a lot, but don't get discouraged. Don't rush. Slow and steady wins the race."

Freelancers need to understand how much money is coming in and out. They must learn basic bookkeeping, from recording business-related expenses to tracking invoices, so payments can be collected. They must also figure out how to offset expenses against taxes.

Track your cash flow

Setting up multiple savings accounts can help you allocate funds to specific financial goals. (Credit: Getty Images)

"Stay organised by keeping track of cash flow, whether manually or with accounting software. You can even hire someone else to do it," says Kevin, a freelance accountant in Bali.

"Set up separate accounts for your freelancing funds and your personal funds," he adds. "This will make tracking income, expenses and taxes easier and more straightforward."

Managing and tracking cash flow is one of the most critical financial habits to develop, because as a freelancer, your income tends to vary. You can keep numerous different bank accounts for your personal expenses, business income, tax and savings.

When you receive income, deposit it into your business account and immediately take out a percentage for taxes to transfer into your tax account. Then, you can set aside 20 per cent for savings and stick to a budget to cover your personal expenses.

"Clearly, seeing what you are earning and spending each month will make your life easier in many ways. It will help you stay on top of taxes and expenses, make better business decisions and allow you to plan for long-term goals, like retirement," says Kevin.

Cash flow tracking will also help you stick to your budget and show you where to cut costs when needed during periods of reduced income. Set aside time each week to monitor and update your financial records. Simple bookkeeping strategies will increase your sense of control and optimise how you manage your business.

Set aside money for an emergency fund

"Freelance income can ebb and flow. Having an emergency fund helps me through the times when cash isn't flowing in as usual, or unexpected events stop me from working for a few weeks or even months. When you don't work, you don't earn. My advice is to create an emergency fund," Steven, a virtual assistant based in Thailand, says.

An emergency fund is your financial cushion. Start with a small amount, as every little bit counts. Keep putting aside small amounts until you have an emergency savings account with enough to cover six to 12 months of living expenses.

Plan your retirement

Pay yourself first and grow your pension fund, so you can retire early and enjoy the best life can offer. (Credit: Shutterstock)

As a freelancer, you need a retirement plan in addition to your emergency fund.

"Be realistic but don't wait until you're earning more to set up your pension pot," says Kevin. "Set aside some of your freelancing income regularly throughout your career. This will take some pressure off you and allow you to enjoy a comfortable and secure lifestyle when you retire."

Plan your retirement with savings insurance that provides a monthly income. If you are already on a tight budget, choose the coverage that allows you to select your preferred payment and period covered. Later, if you have more disposable income, you can add a medical protection rider to focus on your career, worry-free.

Managing your finances as a freelancer can be stressful and confusing, but it's essential to building your business and your long-term personal financial security. Financial confidence comes from educating yourself and planning ahead.

You can achieve financial independence with a solid money management foundation. Watch as finance experts Anna Haotanto and Lachlan Campbell of the AIA Voices community share tips you can do today to achieve financial wellness in the future.

AIA Voices is a community of influential and educational voices from around Asia to talk about life, health and wellness. A platform to educate, motivate and inspire people to make positive behavioural changes on their health and wellness journey. Providing an opportunity for communities across Asia to connect, collaborate, and learn from each other. Designed to drive AIA One Billion, our ambition to engage a billion people to live Healthier, Longer, Better Lives by 2030.

Disclaimer:

This is general information only and is not intended as financial, medical, health, nutritional or other advice. You should obtain professional advice from a financial adviser, or medical or health practitioner in relation to your own personal circumstances.