How Do Freelancers Achieve Financial Stability?

Byadmin
How Do Freelancers Achieve Financial Stability

One of the Freelancing is increasingly becoming normalized nowadays. Despite eased COVID-19 pandemic restrictions around the world, and even if it ends, this free market system is likely here to stay. Main reasons for why it’s widespread is its flexibility and independence. However, it usually has little or no job security, causing many freelancers to suffer from income irregularities and negative cash flow.  But we’ve got you covered. Here are ways to achieve financial stability as a freelancer.

Get Insured 

Insurance is necessary not only as an income protection tool for any unforeseen events or early financial management for retirement. It also serves as a safety net against different risks in every profession—and freelancing is no exception. 

However, one of the downsides of freelancing is securing your own insurance solutions. On a positive note, thanks to the widespread adoption of work-from-home (WFH) and hybrid work setups, a new wave of coverage focused on remote work is now available on the market. 

Here are some of these freelance-focused insurance plans:

  1. Professional Liability Insurance – recommended for freelancers who have to sign contracts with clients since it financially protects them from any client’s legal claim
  2. General Liability Insurance – recommended for freelancers who rent out office space for work since it protects them from customer injuries or third-party damages
  3. Commercial Property Insurance – recommended for freelancers who work from home since standard homeowner’s or renter’s insurance coverage doesn’t cover damages related to a business property
  4. Fidelity Bonds – recommended for freelancers who handle plan funds and properties, such as in the IT, finance, and real estate industries, since it financially protects them from fraud, theft, and data breaches
  5. Cyber Liability Insurance – recommended for freelancers who have to deal with customer data as it financially protects them against legal fees and civil damages

For Health and Disability Insurance, consider the following options and their limitations: 

  1. Parent or spouse’s group health plans – not available for people who are 26 or older and single
  2. Short-term term health insurance – not recommended for people with longer medical needs
  3. Health insurance for low-income – not available for people with household income exceeding 133% of the federal poverty level (FPL)
  4. Affordable Care Act (ACA) health plans – not available for people with income exceeding 400% of the FPL
  5. Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage – not available for people who weren’t full-time employees under a company before.

Finding the right coverage can be daunting. It’s better to speak to a business insurance expert to be certain of the right coverage for your freelancing gig. If you wish to do it alone, online insurance marketplaces can help. 

For example, consider getting quotes from Assurance IQ. This online platform navigates you to different coverage options for every budget, need, or goal. Their site also features personalized insurance quote comparisons to help you save time and effort. 

Separate Personal and Business Finances

  • Keeping a separate personal account and a business checking account has many benefits. It mainly makes cash flow management more feasible. Specifically, it helps you gauge the seasonality of any income stream, plan a budget, and manage tax liabilities and tax returns. 
  • It also establishes credibility. Clients tend to find it more professional when they send payments to your business bank account. Moreover, if a freelancing business fails or a personal loan defaults, it only affects one specific credit, not both. 
  • Since the accounts are separated, slogging through which transactions are personal expenses or business costs can be prevented. This makes bookkeeping much easier, especially during tax season. 
  • Financial experts recommend having at least four separate bank accounts to manage your finances better. These must include a personal checking account, personal savings account, business checking account, and a tax account. 
  • Increase the number of bank accounts, depending on your financial needs, wants, or goals. For example, have a dedicated account for your children’s education in the future or another account for emergency funds, especially if your family has a medical history. 

Establish A Budget

Keeping expenses low while providing quality and timely service is at the core of all successful companies, including freelancing businesses. To achieve this, monitor expenses well and follow a carefully made budget. 

Budgeting has always been the key to avoiding overspending or underspending. The rule of thumb is prioritizing needs, cutting out non-essentials, tracking cash flow, and regularly reviewing a budget and changing it if needed.

Besides these basics, considering the income instability of freelancing, it pays to have backup plans. Know where to find immediate, extra income, what expenses can be immediately forgiven or deferred to the next month, and funding sources to tap into when in need to increase cash flow quickly. 

Final Thoughts

Freelancing boasts more autonomy, freedom from office politics, and flexible hours and work setups. However, to enjoy all of these, one should be willing to tolerate risks and financial instability. The good news is that with a sufficient understanding of these risks and setting proactive measures, financial wellness is within reach despite being a freelancer.