If you’re going to be a successful freelancer, you need to organize your finances.

When you think about life as a freelance writer, I doubt managing your finances comes to mind.

The ‘F’ in finance definitely doesn’t stand for fun. But you could make a good case that it stands for freedom. Because, if your finances are a mess, you’ll never feel totally free or independent.

A perpetual weight will rest on your shoulders.

It’s a subject that most people prefer to ignore and push off until later. It might evoke a yawn, a sigh, or even feelings of stress.

Well, too bad…

… is what I’d say to most people. But you’re not most people. You’re here. You’re either curious or straight up determined to get your finances straight. When they say “only one in four businesses succeed,” you’re the one.

If you’re a freelance writer (especially a new one), you need to prioritize organizing your personal and business finances. And yes, those are two separate things.

When you embrace the role of a freelancer, you become a business owner. As a business owner, you’re responsible for every aspect of your operation — not just your product/service. Marketing, accounting, client acquisition and management, finances — all of it. Heavy emphasis on finances. Why do you need to be in control of your finances as a freelancer and business owner?

1. You need runway
2. Your business needs to be viable
3. You can’t ignore your taxes
4. You can pivot and adjust your strategy
5. You can optimize your work-life balance

If you’re not convinced why you need to prioritize your finances, (1) you’re stubborn and (2) read this.

Here’s a list of financial tasks you need to prioritize as a freelancer.

Open business accounts.

When you start your business, it’s important to separate your business’s finances from your personal finances.

Why? Because intermingling your business and personal finances will make your accounting and tax responsibilities a big ole headache.

Taxes are complicated enough, why make it worse?

On top of that, if you want to be treated like a business in the eyes of the IRS, you’ll want to have business accounts and a business credit card. That’ll make it easier to validate your business expenses and claim deductions.

For example, did you know a lot of your monthly bills can be business write-offs? Phone bills, internet bills, health insurance, etc. There are so many tax deductions for freelancers, but you need to operate like a business to claim them.

Bank accounts don’t cost money to open, and it’s pretty easy to avoid fees (usually a minimum balance will suffice). So, there’s no reason to avoid this critical step.

Choose or create an invoice system.

Everybody likes getting money, right?

Well, if you want to get paid as a business, you‘ll need to learn about invoicing. Don’t worry, it’s not super complicated.

There are two options: (1) you can create your own invoices or (2) you can pay for invoicing software.

I don’t recommend creating your own invoices. I took this approach at first to save money, but it wasn’t really worth it. In the beginning, it’s easier to create your own — you have less clients and more free time. But, once work picks up, you’ll want this task to be simplified and streamlined.

Drawbacks to manual invoicing:

• It’s more time-consuming since you have to create and manage each invoice. Once you have a template, it won’t take long to update each new invoice. But it will take more time to organize, track, and follow up on your invoices.
• Clients might not be comfortable with it, as sensitive data is less protected.
• It’s more prone to human error.

By process of elimination, we’re left with software to handle our invoicing needs. There are several programs/platforms out there with invoicing functionality, such as PayPal, Veem, Quickbooks, Freshbooks, and Wave.

Personally, I use PayPal and Veem. A lot of businesses are familiar with PayPal and use it to pay contractors. Plus, it’s secure and pretty user-friendly. The only downside: fees (2.9% + $0.30 per transaction). For example, if a client pays your $300 through PayPal, you’ll actually receive $291. That’s not outrageous, but they take enough of a percentage for it to be annoying.

That’s why I try to use Veem when I can because it’s a free payment processing platform.

If you want to knock out your bookkeeping responsibilities too, Quickbooks and Freshbooks are better solutions to your general accounting needs. In addition to invoicing, they track billable hours, expenses, and payments. These platforms are common amongst freelancers and small business owners.

Track business income and expenses.

How much your business makes and spends shouldn’t be a crapshoot. You should have some sort of projection. Things change, projections aren’t set in stone, don’t worry — they can be off.

Having to track your income and expenses shouldn’t be a total surprise. But, just in case you need it, here are a few reasons why you have to track your income and expenses.

1. To track your progress
2. To ensure you’re making more than you’re spending
3. To know you’re earning enough to save for life goals
4. To make your tax payments easier to calculate

If you’d prefer to outsource this responsibility, you can either (a) hire an accountant to manage your bookkeeping or (b) pay for accounting software (e.g. Quickbooks, Freshbooks). Are you seeing a theme here?

For your income, if you’re just starting, it’s safe and conservative to project zero inflows (unless you’ve been freelancing on the side and have clients already). If you’ve been earning for a bit and have a few months under your belt, you can take an average of your previous months and adjust according to your pipeline.

When it comes to managing my business’s finances, I do everything in excel. It’s not as complicated as it might sound. Tracking your inflows and outflows should be pretty simple actually — you really just need to record the right information.

Here’s an example for your income:

1. Client / Vendor that’s paying you
2. Invoice # for reference
3. Date delivered
4. Date paid
5. Payment amount

For business expenses, use your business credit card. Your credit card provider should have an online platform where you can download a spreadsheet of all your purchases. Set time aside each month to pull this info into a single spreadsheet.

And make sure to keep a copy of all receipts. Let me say that again…

Keep. All. Business. Receipts. You’ll need them to document your business expenses and get tax write-offs. In all likelihood, most of your purchases will be digital, so this won’t be a difficult task. Just save a copy of each receipt to a local folder.

Invest in your business.

I’m not the only one that’s going to stress this fact — if you want to succeed as a freelancer, you have to think of yourself as a business owner.

Why?

First, because you are a business owner. A business of one is still a business. It (you) have to land and retain clients, pay business expenses, build a brand, market your services, and so on. All of which are business activities. Second, if you view yourself as “just a freelancer” rather than a business owner, you’re capping your potential. You’re keeping an “employee” mindset.

So, how can you adopt a business owner mindset? By investing in your business. That includes equipment, hardware, furniture, websites, courses, books, conventions, and anything else that can help you grow your business.

That doesn’t mean blind spending on anything that could be related to your business. But, if you want to expand your services to include copywriting, don’t be afraid to spend money on a copywriting course or book. Does your backache at the end of a long day of writing? An ergonomic chair might be the solution. Otherwise, you’ll be too distracted by the ache gnawing at your lower back to write anyway.

Depending on how you budget, set aside a certain percentage of your monthly income or certain dollar amount for business expenses (like $50–100). You don’t have to spend it, but if a course or book catches your eye, and you think it’ll help, then buy it.

Plus, you can write off these expenses, which will lower your taxable income.

Don’t forget to save and invest.

On more of a personal finance note, don’t forget to save and invest your (business’s) net income.

Just because you’re taking a risk and starting a business doesn’t mean you can ignore basic personal finance. Quite the opposite — it’s more important than ever.

If you don’t save/invest, you’ll hurt your chances of accomplishing your life goals — like buying a house, backpacking through Europe, buying a pony, or whatever you’re into.

In order to save money despite earning a lower income (at least at first), you’ll have to make some changes, such as adjusting your budget to your new earning power.

Here’s an example. Let’s assume you’re a realtor for a big real estate firm making a $50k annual salary (after taxes), and you spend $40k a year on life (life is expensive). But, you’re done with open houses and indecisive homebuyers, so you decide to become a freelance writer. Hello flexibility, hello freedom. Goodbye picky couples.

Goodbye…comfortable salary.

Unless you’ve been moonlighting as a freelancer, you’re probably starting from square one in terms of income. So, you’ll need to cut back to offset the change. The less you spend, the more runway you have — maximizing your business’s chances.

Once you start landing clients and making money, you can adjust your budget to your new income level (or keep bootstrapping to boost your savings and runway).

The standard recommendation is to save at least 20% of your income, but don’t worry if this isn’t possible at first. Any amount of saving is better than nothing. Plus, by making the conscious effort to save, you’ll create a good habit and adapt to a saving mindset.

If you didn’t budget or track your expenses before, you’ll have to start now — or else you risk compromising your business’s chances of success.

Want to know how to make the sexiest budget in the world — in only 15 minutes? Check this sexy thang out.

Now, let’s talk about investing.

Saving and investing are like twins, you can’t really hang out with one and avoid the other. Once you’ve saved up enough money to cover immediate needs and an emergency fund, you should open a brokerage account and a retirement account to start funneling your savings into.

For a detailed overview of how to organize your finances (including your investments), read through this guide.