When I started my freelance writing business, I didn’t really know what I was doing. I had to learn as I went: how to find clients, how market my work… even how to keep myself on a schedule while working from home was a challenge!
One thing I had going for me, though, was good financial awareness and a willingness to develop healthy habits. Those two things are the only reason my business didn’t fail in its first year.
If you’re taking the leap into self-employment – or are already there and struggling to make things work – try to develop these five habits. They’ll keep your business financially healthy while you figure out how to stop hitting snooze every morning
Separate Your Accounts
When I got my very first paycheck as a freelance writer, I deposited it in my regular bank account and gave myself a high five. Same with the next, and the next, for several months.
It wasn’t until it was time to pay my quarterly taxes and I spent hours combing through my bank account to make sure I hadn’t missed anything that I wised up and opened a separate checking account for my business.
Keeping your personal money separate from your business money is so important for the health of your business. It helps you keep track of how your business is growing and how much you are earning. It makes it easier to file your taxes. And if you should ever be audited, it makes it much easier to pull together all the documentation you need.
Keep Track of Expenses
When you run your own business, even small expenses need to be tracked. That training course may seem cheap at $50, but when you add in the three ebooks you bought, hosting for your website, membership in your local chamber of commerce, the virtual assistant who manages your social media… well, it all starts to add up.
Every business needs a healthy budget, no matter how minimal you think your expenses are. Only by keeping track of your expenses can you make sure you’re earning enough to meet them and still pay yourself at the end of the month. Plus, if you keep track of what you spend your money on, you’ll have a better sense of which expenses are worth the cost and which ones you should ditch.
Select Images Carefully
Think this one seems random? Think again.
When I first started my freelance writing business, I made the mistake of doing a Google image search every time I needed a picture for my blog. I’d pick the prettiest one and call it a day.
That all changed when I received notice that I was illegally using a copyrighted image on a revenue-generating page. Removing the image wasn’t enough; legally (I had a lawyer friend confirm this for me) I owed the company who owned the copyright over $800. At that point, I was only making about $100 a month!
Internet marketing is saturated with images. Every blog or tweet or Facebook post has to have its own photo or graphic. But using someone else’s work can result in you paying very steep penalties. Save yourself the hassle and check where your images come from. Or, even better, just use your own.
Plan for Taxes
When you are employed by a company and taxes are withheld from your paycheck, you never see the money that gets taken out. When you are self-employed, it’s a different story.
Depending on where you live, you may owe federal, state, and local income taxes, as well as self-employment taxes and a host of others. After deductions, your tax bill can be anywhere from 15-40% of your total income!
That’s why, for the health of your business (and your sanity at tax time) it’s important to set aside money for taxes throughout the year. By having a dedicated tax cushion, you save yourself having to dip into your personal money to pay any tax penalties that are owed by your business.
Put Money into Savings Regularly
In addition to the one for taxes, you need one other cushion for financial health: a savings cushion.
In April of this year, my income suddenly dropped by 50% when my highest-paying client decided they weren’t going to use my services anymore. I went from taking a hefty paycheck every week to paying myself a few hundred dollars every month. It was a huge decrease in income, since I had to put most of my writing revenue towards business expenses like web hosting and tax payments.
While I built my income back up the couple of months that followed were incredibly tough. Even so, they would have been a lot tougher if I hadn’t had any savings to fall back on.
When you are self-employed, your income can be erratic, especially when you are just starting out. One month you may make thousands of dollars, the next month you might not make enough to pay for groceries. You can protect yourself by regularly contributing to your savings account until you have several months’ worth of expenses stashed away. That way no matter what ups and downs your business might face, you’ll still be able to cover your necessary expenses.