I won my first freelancing job when I was 19. I had to write a bunch of travel articles for five bucks a pop. It wasn’t much, but it was a start, and more importantly, I considered it a temporary solution. Orders started rolling in and within the span of two years, I was making more money than my parents. I didn’t care too much about reading any financial tips. Working on my own and being financially independent felt great. When you’re a 20-something-year-old with a decent income you don’t care too much about the distant future. Yet, due to the unstable nature of freelancing and my uncontrollable spending habits, I would still worry that the day would come when I’d have I wasn’t the only one. According to a Bank of America/USA Today report, 30% of Millennials are worried that they won’t have enough money to last through the month. “Millennials are overly optimistic. Although we know retirement is going to happen eventually, and that we probably won’t have Social Security, our generation lives for the now.” Source: Tonya Rapley, founder of My Fab Finance, for GoBankingRates Approximately two years ago, on Easter, my freelancing career went to hell in a hand-basket. My most important client, and 70% of my income, disappeared without paying. I couldn’t find any last-minute projects and I spent my last $4 on a pack of cigarettes. Luckily for me, everything worked out in the end (thanks mom). I promised myself that I would never go through anything like this again. Why it’s Important to Budget your Money as a Freelancer Commutes that consist of walking to your desk and mid-day naps are only some of the many perks of freelancing. But as any young freelancer can tell you, this lifestyle is not always sunshine and rainbows. The biggest stressors of freelancing generally revolve around money: Not having taxes deducted from your income. Not being eligible for group insurance. Not having a steady income or not earning enough money. If your young mind can’t stomach the idea of obtuse office politics, here are eight financial tips for millennials that freelance that I learned after six daunting years of freelancing. #1. Find out where your Money is Going If you want to spend less than you earn you must first understand where your money is going. All of it. You may be tempted to leave out that $3.00 latte, but small, uncontrolled expenses are usually the biggest budget drainers. If you have a habit of drinking a latte every morning that’s almost $100.00 dollars that you have no control over. You should start tracking your spending with whatever method you’re most likely to stick with – write it down, use an excel sheet, or install a convenient app. I use the Mint (desktop) and Monefy (smartphone) apps to quickly write down the amount and type of spending. At the end of the month, I can view my financial history and determine where I could have saved more. #2. Separate Personal Finances from Business Finances Are you managing personal and business finances from the same bank account? This solution may seem convenient on the short-term, but it will lead to major headaches during tax time. Separating these accounts will make it easier for you to monitor business spending and allocate new budgets for future projects. With a business account you can quickly manage all incomings and outgoings, and pay yourself a monthly salary. #3. Make Emergency Savings Non-Negotiable Last year, I started saving money instead of wasting it on games I never had time to play and clothes I didn’t actually need. This has helped me save up a sizeable sum that I can use to smooth out income gaps. Young freelancers should strive to save up at least three to six months of essential living expenses. This includes utilities, debt payments, groceries, transportation, and housing costs. If you manage to save more, such as a year’s worth, you should put it in the bank for extra interest. Pro tip: Turn at least 10% of your income into emergency savings. If you don’t trust yourself with money you can ask a friend to keep it safe for you. #4. Work towards your Financial Goals Wisely The transition to adulthood is difficult. Most Millennials start thinking about settling down, buying their own home, or getting a nice car at the age of 28. Young freelancers should not lose sight of their long-term financial goals. Let’s break down the biggest financial investments: Buying a house is, without a doubt, the greatest investment for any millennial. The good news is that, as a freelancer, you can work from anywhere in the world, so you can pick a cheaper place to live. In other words, instead of spending $800/month for a 90sqm apartment in San Francisco you can get a nice cottage in Cleveland or Riverdale. As far as cars are concerned, I find used ones financially logical for two reasons. First of all, new is not always better. Tom Caesar, Managing Director from Positive Lending Solutions advises: “A new car loses thousands of dollars in value the moment you drive away from the dealership, but a pre-owned car depreciates more slowly. If you buy a car that is one to two years old, you’re making a significant saving and hopefully getting a vehicle with low kms.” Second of all, used cars are easier to pay in full. With a little bit of research and forum snooping you can definitely find yourself a great car for less than $4,000. There is one more thing you need to consider as a freelancer – purchasing a car or a new home requires proof of income (this is also one of the reasons why used cars are financially logical for freelancers). The problem is that most freelancers can’t exactly present a pay stub. Tax returns can be used to show exactly how much you earned in a year because they are generally good estimates of how much you will earn next year. Other solutions would be bank statements, invoices, and contracts. #5. Give Yourself an Allowance This may sound a bit silly, but it works. In order for this to work, you have to create a budget using a minimum amount of income that you can survive with. Subtract all your regular expenses from your income (e.g. rent, utilities, transportation, food, etc.). Set aside some money for your savings account, and divide what’s left by four. This will be your weekly allowance. To ensure that you don’t splurge or exceed the weekly allowance, simply track your costs separately. By using this method you can also control “planned” events. For example, if you have to renew a tool’s subscription, or go to a birthday party, you can automatically mark this expense in your sheet ahead of time. This method may seem a bit cumbersome, but it works. If I were left to my own devices I would probably spend my entire allowance in less than two weeks. #6. Introduce Higher Rates to Clients Increasing rates without losing business can be stressful because you never know how your clients will react. Assuming that your work is top-quality, it shouldn’t be impossible. Clients will always try to pay less, but they will never give up a good service. Furthermore, if I were you, I wouldn’t worry about losing some business in the process. This will open up your schedule and give you the opportunity to collaborate with newer, better clients. I found that one of the easiest ways to increase rates is by emphasizing perceived value, rather than competing on price. Freelancing is not a price war, it’s a value war. The way you present your services is much more important than going toe-to-toe with other freelancers. Stop worrying about freelancers that offer to do work for ridiculously small sums. From my experience, their services are extremely low quality, and clients know it. Your price should be reflective of the value of your work. This brings me to number #3. An emergency savings account will give you the freedom to accept only projects that are profitable & increase rates without having to worry about losing business. #7. Batch Process Financial Tasks Just because you choose to ignore your financial responsibilities doesn’t mean that they will go away. As a matter of fact, the longer you ignore them, the more unmanageable they become. “I’m going to get to it later.” Don’t lie to yourself, you know that’s not going to happen. The faster you solve financial issues, the easier it will be to avoid penalties and avoidance. I strongly recommend reserving one day of the month for finances. On this day, you will do nothing else but to plough through your pile of invoices, bills, and payments. If the thought of slaving over financial documents all day seems unbearable, team-up with a friend and go to a café. Reward yourself at the end of the day with something nice and think about the fact that, provided you finish everything on “finance day”, you won’t have to worry about this problem for an entire month. #8. Start Saving for Retirement Saving money for retirement is probably as exciting as a root canal treatment. However, the sooner you start squirrelling away your funds, the better off you’ll be during your glorious 60s. According to finance experts, at least 10-20% of our income should go into our retirement funds. However, for the millennial, putting money away can be extremely difficult. Most young freelancers put off saving for retirement because they want to regain control of their current finances. This rarely happens because most people spend exactly what they bring home. So how exactly are you supposed to save for retirement? Simple: start small. “The real magic in starting small is that it becomes a habit. Gradually increasing one’s contributions becomes fairly easy to do once the inertia of the habit is in play.” – Source: Christopher Kimball of CK Financial Services in Lakewood for Bankrate Put your money in retirement accounts instead of regular ones (great tax benefits): Individual 401(K): Contributions are only taxed upon withdrawal, thus leading to reduced tax liabilities ($52,000 cap). Simplified Employee Pension (SEP): Contribute up to 25% of your next earnings ($52,000 cap). Roth Individual Retirement Account: advantageous option for those who anticipate entering a higher tax bracket upon retiring. For millennials to want to save for retirement, their goals must be palpable. Knowing exactly what you want to accomplish in your retirement is, therefore, critical. According to the founder of FinancialMentor.com, freelancers and solopreneurs don’t retire in the traditional sense. Many of them are able to achieve a work/life balance that 9 to 5 grinders simply can’t. If this is the case, then you need to find a client-base that’s solid & loyal so that you don’t have to work every month to pay your bills. Wrapping up… These financial tips may sound scary, but they are more than manageable for any young entrepreneurs. Coming up with a realistic life plan that will enable you to save for retirement, or emergencies is vital to the success of your freelancing career. Images: ”a young caucasian man in jeans taking one US dollar out of his pocket/Shutterstock.com“ ____________________________________________________________________________ Tweak Your Biz is a thought leader global publication and online business community. Today, it is part of the Small Biz Trends stable of websites and receives over 300,000 unique views per month. 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