CH 6 (draft) QUICK GUIDE TO SAVING AND BUDGETING FOR FREELANCERS

CHAPTER SIX OF TEN - CH 6. Track Expenses Diligently

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CH 6. Track Expenses Diligently

For freelancers, knowing exactly where your money goes is critical for several reasons.

Budget Management. Tracking expenses helps you understand your spending patterns, and helps you stay within your budget. It allows you to see if you're overspending in certain categories and make adjustments to prevent financial strain.

Tax Deductions. Many business-related expenses are tax-deductible. Accurate tracking ensures you don’t miss any of these deductions, which may significantly reduce your taxable income and save you money.

Financial Health. Diligent expense tracking provides a clear picture of your financial health. It shows whether your business is profitable, where you might be losing money, and where you can cut costs to improve your bottom line.

Preparedness. Understanding your expenses prepares you for lean periods when income might be lower. By identifying unnecessary costs, you can build a buffer to weather slower times.

Choose the Right Tools

Budgeting Apps

Apps like Mint and You Need a Budget (YNAB) are designed for personal finance management, helping you track both personal and business expenses if you have simpler needs. They categorize your spending, alert you to overspending, and provide insights into your financial habits.

Accounting Software

If you need more detailed tracking, especially for business expenses, consider using QuickBooks Self-Employed or FreshBooks. These tools offer features tailored for freelancers, such as automatic expense categorization, mileage tracking, and invoicing.

Bank Integration

Many apps and software options allow you to link your bank accounts and credit cards directly, so transactions are automatically imported and categorized. This automation reduces the time and effort required for tracking.

Categorize Your Expenses.

Create Specific Categories

Divide your expenses into categories that make sense for your business and personal life. Common categories include office supplies, software subscriptions, marketing, travel, and meals. For personal finances, categories might include rent, groceries, utilities, and entertainment.

Custom Categories.

If your work has unique expenses, create custom categories to track them separately. For example, if you're a freelance writer, you might have a category for research materials or online courses.

Review Regularly

Regularly review your categorized expenses to identify trends and areas where you might be overspending. Adjust your budget accordingly to keep spending under control.

Track in Real-Time

Enter Expenses Immediately: To ensure accuracy, record expenses as they occur. Many apps allow you to capture receipts with your phone and enter the details immediately. This habit prevents forgotten or missed expenses.

Use Notifications: Set up notifications on your budgeting app to alert you when you've reached a certain spending limit in a category. This helps you stay on track with your budget and avoid overspending.

Monthly Review: At the end of each month, review your expenses to ensure everything is accurately categorized and recorded. This review helps you catch any discrepancies and adjust your spending plan for the following month.

Identify Areas to Cut Costs

Analyze Spending Patterns: Look for patterns in your spending to identify areas where you can cut back. For example, if you notice that dining out is consuming a large portion of your budget, consider cooking more meals at home.

Subscriptions: Review your subscriptions regularly to see if you're paying for services you no longer use. Canceling unused subscriptions can free up money for other needs.

Negotiate or Shop Around: For recurring expenses like internet service or insurance, consider negotiating with your provider for a better rate or shopping around for a more cost-effective option.

Keep Accurate Records for Taxes

Save Receipts: Maintain digital or physical copies of receipts for all business expenses. These records are crucial if you ever need to substantiate your deductions during an IRS audit.

Mileage Tracking: If you drive for business, use an app or a simple log to track your mileage. Many apps, like QuickBooks Self-Employed, can track mileage automatically via GPS.

Tax Preparation: Come tax season, having all your expenses tracked and categorized simplifies the process of filing taxes. It ensures you capture all deductible expenses and avoid leaving money on the table.

Why This Works.

By tracking expenses diligently, freelancers gain control over their finances, ensuring they are not only prepared for tax season but also capable of making informed financial decisions throughout the year. Regular expense tracking helps identify wasteful spending, enabling you to cut unnecessary costs and allocate more funds toward savings, investments, or growing your business. Moreover, this practice instills financial discipline, which is crucial for long-term success and stability as a freelance

Last Words.

Freelancers don’t have access to employer-sponsored retirement plans like 401(k)s, nor do they receive matching contributions from their employer. This means that the responsibility for building a retirement fund falls entirely on the individual. Without a dedicated plan, many freelancers risk reaching retirement age without sufficient savings, which can lead to financial insecurity later in life. By taking proactive steps to invest in retirement, freelancers can ensure they have the financial resources needed to maintain their lifestyle after they stop working.