How to Pay Yourself When You're a Freelancer
As a freelancer, it's important to establish a clear system for paying yourself. Unlike traditional employment, where a set salary is determined by an employer, freelancers must determine their own income based on their workload, rates, and business expenses. In this article, we'll discuss some strategies for how freelancers should pay themselves.
Set a rate that covers expenses
One of the first things freelancers need to do is establish a rate that covers their expenses. This should include overhead costs such as rent, utilities, and internet access, as well as other business expenses such as software subscriptions, marketing expenses, and taxes. Once you have an estimate of your expenses, you can determine how much you need to earn per hour, day, or project to cover them.
Determine your ideal income
After determining your expenses, it's important to decide on your ideal income. This can be based on your financial goals and the standard of living you want to maintain. When determining your ideal income, be realistic and consider the industry standard rates for your services.
Separate personal and business finances
Freelancers should always separate their personal and business finances. This includes having a separate bank account and credit card for business expenses, as well as creating a budget for personal expenses. This helps you to better track your income and expenses, and ensures that you don't accidentally spend your business funds on personal expenses.
Pay yourself regularly
It's important to establish a regular schedule for paying yourself. This can be weekly, bi-weekly, or monthly, depending on your preference and workload. Establishing a regular schedule helps you to better plan your finances and ensures that you have a consistent income.
Consider a percentage-based system
One strategy that some freelancers use is a percentage-based system for paying themselves. This involves setting aside a certain percentage of each project payment for taxes, expenses, and savings, and then paying themselves the remaining amount. This can help freelancers to better manage their finances and plan for future expenses.
Re-evaluate your rates regularly
Finally, it's important to regularly re-evaluate your rates and adjust them as needed. As you gain more experience and expertise, you may be able to charge higher rates for your services. Additionally, as your expenses or financial goals change, you may need to adjust your rates to ensure that you are able to cover your expenses and meet your financial goals.
In conclusion, freelancers should establish a clear system for paying themselves that takes into account their expenses, financial goals, and workload. By setting a rate that covers expenses, separating personal and business finances, paying themselves regularly, considering a percentage-based system, and regularly re-evaluating their rates, freelancers can better manage their finances and ensure that they are able to maintain a sustainable income.