Did you know January's Financial Wellness Month? Yup. In honor of that, I asked my pal, Lisa Drake, CPA and accounting professor at Foothill College, for some financial resolutions for freelancers and contractors (that's here there on the left). Here are her top five financial tips to help you take care of your financial business and get back to doing what you do best.
1. Separate your accounts. Set up a separate bank account for your business income and expenses, and consider dedicating a credit card to business-only transactions. "There's nothing worse than having to separate out transactions at the end of the year to figure out whether you've made money or not," Drake says. "It's cleaner this way trust me." And the extra work of managing that additional account is still less stressful and time-consuming than a mad dash to separate it all out right before the filing deadline.
2. Use credit carefully. While using credit cards to make purchases -- and paying those accounts off each month -- is good business, resist the temptation to use that credit to cover operations, especially when business is slow. Why? You can easily wrack up a huge amount of debt you'll struggle to pay off even when business picks up. "Interest on the debt keeps accruing and it's a vicious cycle," Drake laments. "Better to not get into the trouble in the first place."
3. Work with a pro. Even if your finances and taxes are simple, it pays to meet with a CPA or EA (Enrolled Agent) to make sure you've got things set up right, are paying the right amount, and are tracking the right things. "Finances and taxes are their areas of expertise," Drake says. "These pros can help you maximize deductions and avoid troubles with the IRS."
4. Build a war chest. It's a sad fact of life, but finances often ebb and flow for freelancers and contractors. Resolve to set aside (or set aside more) some cash to cover you when business is slow or clients take their time to pay you. "You have to have a war chest stocked with at least 4-6 months of operating capital," Drake counsels. "And more is better." [Tips for dealing with slow-paying clients]
5. Pay your taxes. Seems obvious, but a lot of freelancers and contractors are confused about when and how much they have to pay in taxes. Yet another reason to meet early with a tax professional! As long as you're salting away some cash, don't forget to earmark some for income tax and estimated tax payments. "The feds and probably the state want their fair share," Drake laughs. "And those guys get testy when you don't ante up. Stay ahead of it with estimated tax payments. If you don't know how much to estimate, your CPA or EA can help you with this. It's the best way to avoid a nasty surprise come April 15th."
- Forbes' 2014 Financial Resolutions List
- The Wall Street Journal's Realistic Financial Resolutions for 2014
- U.S. News' Resolutions that Will Save You Money in 2014
- How to get started as a freelance writer
- Everything you need to know about your taxes (from my series for Staples)