Freelancers are no strangers to the ups and downs of running a business. From finding new clients to managing projects and invoices, it can be stressful to wear many different hats in a day–especially if you have to deal with a financial crisis.
Whether dealing with unexpected expenses or struggling to get paid on time, financial setbacks can be a significant source of stress for freelancers like you. This blog explores some of the most common financial struggles you encounter as you navigate through the world of freelancing and how you can overcome them.
Financial Setbacks of Freelancers
Escaping traditional jobs to do freelancing as a full-time career brings a host of financial challenges that most people might not be ready for. According to the Marketplace-Edison Research Poll, one-fourth of gig workers in the U.S. have reported significantly higher economic anxiety than traditional 9-5 workers.
This anxiety stems from constant financial turmoil, given that they don’t have an employer to pay for their non-working hours, inaccessibility to health benefits, fluctuating market conditions, and so on.
Most common reasons why freelancers experience financial struggles
From navigating taxes to managing cash flow and expenses, freelancers struggle with financial stability and security. Let’s explore some of the most common financial struggles that freelancers face.
1. Lack of consistent income
Unlike traditional employment, freelancers don’t receive a regular paycheck. Your income can be irregular, and you may have months where you earn significantly less than you anticipated. This can make it challenging to plan for your business’ growth and meet your personal financial goals.
2. Limited access to benefits
Freelancers don’t typically receive benefits like healthcare, retirement, or paid time off. These costs can add up quickly and affect your overall financial well-being.
Let’s take health insurance, for example. Traditional employees typically receive employer-sponsored health insurance. But because you are your own employer, you are responsible for finding and paying for your health coverage.
This can be costly, especially if you have pre-existing medical conditions or require extensive coverage. Without insurance, a single medical emergency can quickly drain your savings and put you in a difficult financial situation.
3. No regular clients
Without a consistent stream of work, making ends meet and planning for the future can be challenging. You may find yourself constantly searching for new clients or working longer hours to compensate for the lack of work.
In the long run, the constant need to hustle can lead to burnout and affect your mental and physical health. Not only that, having no regular clients could cause financial strain on your cash flow since you don’t have sufficient resources to pull money from.
4. The hassle of processing self-employment taxes
Unlike traditional employees, you are responsible for calculating your taxes and filing your returns. For some, this can be a complex and time-consuming process, especially if they need to familiarize themselves with tax laws and regulations in the Philippines.
One of the biggest challenges of processing your taxes is keeping track of all your expenses and income. As a freelancer, you may have multiple clients, each with its payment terms and invoicing processes. You must keep accurate records of all your transactions, including receipts for business expenses and payments received.
If you make a mistake or overlook a deduction, you could end up paying more in taxes than you need to. Likewise, failing to pay your taxes or filing your returns late can result in penalties and interest charges.
5. Difficulties with invoicing and getting paid
Invoicing your clients correctly and on time is crucial for the financial success of your freelance business. It ensures you get paid for your work, minimizes client disputes, and helps you manage your cash flow more effectively.
Many things could go wrong if you fail to process your invoices with your clients. For example, if you don’t invoice your clients regularly or on a consistent schedule, you might have difficulty staying on top of your bills.
6. Limited access to credit
Running a legitimate and legal freelance business allows you to have access to credit, which you can use to purchase new office equipment, hire employees, or cover emergencies. However, some freelancers are not qualified for credit, especially when they lack the requirements.
Since your income is unpredictable and fluctuates monthly, you could leverage financing to plan for expenses or save for your business growth. With access to credit or loans, you can bridge these gaps and ensure you have the resources to cover the costs, even when income is low.
7. Lack of financial knowledge
Many freelancers have little experience managing their finances, which can make it challenging to stay on top of things. You may not know how to create a budget, set a price for your services, or understand the tax implications of being self-employed.
Without doing your research or having the right support system to guide you in managing your finances, this can lead to debt, stress, and financial insecurity.
Strategies a Freelancer Can Use to Deal With Financial Setbacks
Financial difficulties are a part of the job, especially if it’s your first time running your own business. However, by taking proactive steps and implementing effective strategies, you can overcome them and emerge stronger and more resilient.
Here are a few ways to overcome your financial adversities and run an even more profitable business.
Create a budget and stick to it
One of the most important ways to resolve financial setbacks is to create a budget. When you track your income and expenses, you are able to clearly understand your financial situation and know where you need to cut back or save money.
When creating a budget, make sure you have a list of all your regular expenses and prioritize them based on their importance. Also, consider creating an emergency fund for unexpected costs or slow work periods.
Here are concrete steps to create a healthy budget:
- Determine your income. Start by calculating your average monthly income. This may include client income, affiliate marketing, or other revenue streams. If your income fluctuates monthly, use your average income from the past few months to estimate your future income.
- List your expenses. Make a list of all your regular expenses, including rent, utilities, Internet, transportation, and other business expenses. Include any irregular or unexpected expenses, such as medical bills or car repairs. Also, remember to separate your personal and business savings accounts so you know exactly how much is going in and out of your professional services.
- Identify areas to cut back. Look for areas where you can save more. For example, you can reduce your transportation bill by meeting clients via Skype or Zoom. A healthy way to cut back is limiting your working schedule so you can keep your electricity bill manageable. Also, it helps to refrain from using your credit card when managing your expenses. This will help you spend on necessities and reduce unreasonable expenditures.
- Create a budget plan. Based on your income and expenses, create a budget plan that outlines how much money you can allocate to each expense category. Be sure to factor in any unexpected costs, such as computer repairs, and leave some room for flexibility if your income changes.
- Track your spending. Once you’ve created your budget, track your spending to ensure that you’re sticking to your plan. Use financial management apps like Beppo to help you stay organized and on track.
Build an emergency fund
Having an emergency fund is crucial to help you manage unexpected financial adversities. Freelancing often means having an unpredictable income, and an emergency fund can provide a safety net to help weather any economic storm.
When building an emergency fund, experts recommend saving somewhere between three to six months’ worth of your living expenses. This can seem daunting, but you can start by setting aside a small portion of your monthly income and gradually building your fund over time.
Look for ways to increase your income
Relying on a single client or stream of income can be risky. This is where diversifying your income comes in. By diversifying your income sources, you can minimize the impact of financial setbacks and ensure that you have multiple revenue streams.
You can expand your client base and increase your earning potential by exploring new revenue streams. Here are a few ways to diversify your income:
- Offer new services: If you specialize in a particular service or skill, consider adding new services that are related to your expertise. This can attract new clients and provide additional value to your existing clients.
- Create digital products: Consider creating digital products such as e-books, courses, or templates related to your area of expertise. These products can be sold through your website or online marketplaces and can provide you with passive income.
- Do affiliate marketing: Partner with businesses or brands that offer products or services that complement your niche. You can promote these products or services to your audience and earn a commission on any sales made through your referral link.
- Participate in speaking engagements: Consider offering your expertise as a speaker at conferences or events. Speaking engagements can provide exposure, networking opportunities, and additional income.
- Join freelance platforms: Consider joining freelance platforms that allow you to find new clients and work on short-term projects. These platforms can provide additional income streams and help you build your portfolio.
- Create a digital storefront: Consider creating a digital storefront where you can sell physical products related to your area of expertise. This can include merchandise or customized products related to your area of expertise.
Be proactive about invoicing and getting paid
It’s easy to put invoices off until later, especially if you have a lot of things to do. As a freelancer, invoicing is crucial to managing your finances and ensuring that you get paid for your work.
When you send an invoice to your client, you provide them with a clear statement of your work and the amount they owe you. This helps avoid confusion and ensures you receive payment for your services.
On top of that, invoicing promptly and proactively helps you meet your financial goals. By keeping detailed records of your invoices, you can easily track your income and expenses, which is essential for managing your cash flow and budgeting.
Likewise, invoicing is crucial for legal and tax purposes, including claiming business expenses and deductions. This is why apps like Beppo will go a long way in helping you stay on top of your invoices.
Beppo helps you prepare, manage and send invoices to clients, so you won’t have to do it on your own. It also keeps you from making invoicing mistakes and gives you a bird’s eye view of your cash flow.
Dealing with financial setbacks can be overwhelming and stressful. Feel free to seek support and guidance from friends, family, or a financial advisor. Joining a community of freelancers or industry groups can provide valuable resources and insights to help you navigate financial challenges.
Most Common Issues Online Freelancers Face (and How to Resolve Them)
Many online freelancers are experiencing various financial hardships that take a toll on their operations. This comes in the form of paying their own taxes and health insurance, doing non-billable activities such as chasing an unresponsive client, competing in the global marketplace, and handling their own bookkeeping and accounting.
Thankfully, Filipino freelancers may now use Beppo, the all-in-one finance and tax management platform that allows you to enjoy exciting features such as:
- Cashbook: track your income and expenses as they happen.
- Invoice: Send invoices to clients in the most convenient way via SMS, Viber or e-mail.
- Budgeting: Track and manage your budget on the app. Now, you can set limits and automate your budgeting.
- Tax projection: Get an estimate of how much taxes you owe through the app.
- Community: Connect and engage with other freelancers through Beppo’s platform.
- Live support: Get assisted tax filing from experts.