Last Updated February 2022 by Crystallace
I do tons of odd jobs for other lawyers at home. Most of it is legal work but often I write blog articles for legal websites. Freelance income is a great side hustle for me.
Freelance work can be a great way to earn money but it can also be difficult to keep track of your income when you’re not working a traditional job. Finances tend to ebb and flow a lot more than when you’re getting paid a steady, regular income from being employed.
There’s also just a lot more to keep track of. You have to withhold money for taxes, keep track of multiple accounts, and plan around an unpredictable income.
So I wanted to share my best tips for tracking your freelance income so that don’t get in trouble with Uncle Sam. So Be sure to Pin 📌 this post for later.
First, let’s talk about the…
Benefits of Tracking Your Freelance Income
Even though it’s a lot to manage, it’s critical to track and budget your income – especially when it’s unpredictable.
Here’s 4 reasons why:
- You can create a realistic budget. You have to know what you earn in order to set a budget that’s going to work.
- You can set financial goals. Once you see where you are financially, you can set goals that make sense.
- You can save on interest. By planning more realistically, you can avoid the “feast or famine” cycle that leads to credit card use and other forms of debt.
- You can stress less. Once you make a solid financial plan based on your income, you can focus on other things.
Fortunately, you can still be financially stable as a freelancer by tracking your income efficiently. By tracking your income, you’ll have a much better picture of your finances – so you can make better financial decisions overall.
Here are a few tips for tracking your freelance income efficiently and ensuring that you always know exactly how much money you’re making.
Track Your Freelance Income in One Place
One of the most challenging things about running a freelance business is tracking your income and expenses when you have many different accounts and payment processors.
To make sure you’re accurately reporting your income, it’s best to create one location where all of your information can be stored. You can do this with a simple Google spreadsheet or use an app like Quickbooks to keep track of everything. What’s important is that you have one place to track your income so you don’t have to sort through a bunch of different reports.
Personally, I use Microsoft Excel for this.
Use One Accounting Method Consistently
When you’re tracking your income, you can either do so at the moment you make a sale or send out an invoice (known as accrual accounting) or when you receive the funds (known as cash accounting). Either way can work, but it’s important that you pick one method and stick to it.
For example, if you choose cash accounting, every payment you receive must be recorded. Otherwise, your income will be unreported and can lead to serious problems down the line.
Since freelance income can be inconsistent, self-employed individuals often have to budget differently. One smart way to budget is to do so based on the prior month’s income.
For example, you would put all money received in your business account for the entire month of January without using it. Then, at the beginning of February, pay all of your business bills and pay yourself based on what you made in January. The cycle then starts over as you collect February’s income in your account. As you pay yourself, be sure to leave enough money in your business account to cover taxes and business expenses.
One of the main benefits of budgeting this way is that you can avoid the feast or famine cycle by having somewhat of a financial buffer. If you find work slowing down, you have time to figure out where to find more work or where to cut back on expenses, depending on what will work for you.
Self-Employment Tax Costs
When you work for someone else, your taxes and other government payments are withheld from your paycheck by your employer. However, when you’re self-employed, you must pay the full costs of medical and income taxes yourself.
Tracking your income is the only way to figure out what you owe in taxes. Fortunately, there are a lot of tools available to calculate what you owe, but they’re only as accurate as the income you put in.
Helpful Apps for Tracking Freelance Income
There are many helpful apps available to help you track your freelance income. Some of the most popular options include Evernote, Wave Accounting and Freshbooks. I use Wave because the free version fits my needs.
Evernote is a great option because it allows you to take notes, record receipts and save your information so you can access it easily. It’s accessible from your desktop and smartphone so you can use it on the go and sync up easily.
Google Drive is another useful option, as it allows you to keep your data in the cloud and comes free with many mobile devices. It’s also possible to share files with others if you’re working on a team or want to pass along information to someone else.
Wave Accounting tracks billing and invoicing for you at no cost. There are a lot of features for tracking your income, with the premium membership offering some more robust tools.
Freshbooks is another popular app that has a lot of useful features specifically designed for freelancers. It’s easy to use and integrates with popular programs like PayPal, which makes it a great choice.
Found Card is a banking app for business owners. When you sign up, you receive a prepaid debit card. You can send invoices to clients from the app and have them sent right to the card. You can also connect the app to your regular bank account to transfer funds.
PayPal is a payment processor that can be used to take web payments or send invoices. It’s compatible with a lot of different platforms and many customers prefer it because of the advanced protection PayPal offers buyers.
There are a lot of different ways to track your freelance income
But it’s important that you find one method and stick to it. By budgeting smartly and tracking your income accurately, you can avoid the feast or famine cycle often associated with self-employed individuals. There are many helpful apps available to make the process easier, so be sure to explore your options and find one that works best for you.
How are you currently tracking your freelance income? Let me know in the comments.