Freelance Guide 2

Managing finances as a freelancer requires some know-how, especially around budgeting, tax planning, and expense tracking. This guide is designed to simplify these processes so you can handle your finances with confidence and focus more on your business.

1. Setting Financial Goals and Budgeting

Clear financial goals are essential for keeping your business on track and ensuring you can cover your expenses.

Defining Financial Goals

Setting achievable financial goals helps you structure your workload, set realistic prices, and ensure you’re bringing in enough to cover both business and personal needs.

Steps to Set Your Financial Goals

1. Calculate Your Annual Income Needs:
   • Start with a list of annual personal expenses (rent, bills, groceries).
   • Add your projected business expenses (software subscriptions, supplies).
   • Aim for a target that covers both and includes a cushion for unexpected costs.
2. Divide Your Annual Goal into Monthly Targets:
   For example, if your annual income goal is $70,000, your monthly target will be around $5,833. This allows you to track your progress each month.
3. Set Specific Goals Beyond Income:
   • Set milestones like securing a certain number of clients per month or reaching a monthly savings goal.
   • Include goals for investment in the business, such as new equipment or training.

Creating a Budget

Budgeting helps ensure that your spending aligns with your income. A freelancer’s income can fluctuate, so having a flexible budget is essential.

Steps to Build a Freelance Budget

1. List Monthly Expenses:
   • Fixed Expenses: Rent, internet, subscriptions.
   • Variable Expenses: Office supplies, travel, marketing costs.
2. Identify Non-Essential Spending:
   • Look for discretionary expenses you could reduce if income dips.
3. Add a Savings Category:
   • Aim to save a portion of income each month for taxes, emergencies, and future investments.
4. Review Quarterly:
   Adjust your budget every three months based on income fluctuations, new expenses, or financial goals.

2. Managing Business Bank Accounts

Separating your business and personal finances is crucial for clear expense tracking and easier tax filing. Here’s a simple guide to setting up and managing your business bank account.

Benefits of a Dedicated Business Account

• Simplified Expense Tracking: Easier to monitor business-related spending.
• Professional Appearance: Invoices from a business account appear more legitimate.
• Tax Benefits: Having all business transactions in one place makes it simpler to prepare for tax time.

Choosing a Business Bank Account

Here’s what to look for when opening a business account in Australia:

• Low or No Monthly Fees: Compare options that fit your expected transaction volume.
• Online Banking Access: Look for accounts with robust digital banking options.
• Perks or Benefits: Some accounts offer cashback, free transactions, or interest rates that may be beneficial.

Tip: Shop around to find an account with features suited to freelancers, such as quick-access ATMs, digital wallet compatibility, and easy transfers between accounts.

Setting Up Your Business Account

To open your account, you’ll typically need:

1. ABN (Australian Business Number): Required to open a business account.
2. Personal Identification: Passport, driver’s license, or other photo ID.
3. Business Name Registration: If you’re trading under a name other than your own, register it with ASIC.

3. Tracking and Claiming Expenses

Keeping track of expenses not only gives you an accurate view of business costs but also helps you save on taxes. Here’s how to approach expense management effectively.

Overview of Deductible Expenses

Freelancers can claim a range of expenses, provided they’re directly related to the business. Here’s a breakdown:

Expense Type	Examples	Claimable?
Home Office Expenses	Portion of rent, utilities, internet	Yes, for % used
Travel Expenses	Public transport, mileage for client visits	Yes, with logbook
Office Supplies	Printer, paper, pens, business cards	Yes
Software Subscriptions	Design tools, accounting software	Yes
Marketing Costs	Ad spend, business website	Yes
Training and Education	Courses, conferences related to your field	Yes

Expense Tracking Tips

Using software or apps to track expenses can save hours each month. Here are some effective strategies:

1. Automate with Software: Tools like Sole’s app, QuickBooks, or Xero can link to your bank account and automatically categorise expenses.
2. Digital Receipts: Take photos of physical receipts and store them in a digital folder or app.
3. Expense Categories: Set up expense categories that align with tax reporting, such as “Office Supplies,” “Travel,” “Marketing,” and “Software.”

Expense Claiming Cheat Sheet

Example Claimable Expenses in Australia

• Office Supplies: Any item essential for work, from notebooks to desks.
• Utilities: The percentage of home internet, electricity, and water used for business.
• Travel: Mileage for work-related trips, flights for conferences, or client meetings.

Note: Always keep receipts for at least five years in case the ATO requests them.

 

Why not talk to Sole’s premier partner Accountants Direct who have a very affordable bookkeeping service that will do all the expense keeping and much more for you. 

4. GST and Tax Preparation

Understanding your GST and tax obligations is vital to avoid penalties and manage cash flow effectively. Here’s what you need to know.

Understanding GST

Goods and Services Tax (GST) is a 10% tax on most goods and services in Australia. Freelancers earning over $75,000 annually must register for GST.

Steps to Decide if You Should Register for GST

1. Estimate Annual Income: If you’re approaching or expect to exceed $75,000, registration is required.
2. Consider Voluntary Registration: Even below the threshold, registering for GST can sometimes benefit freelancers, as it allows for GST credits on business purchases.

How to Register for GST

1. Log into the ATO’s Business Portal with your ABN.
2. Select “Goods and Services Tax” from the registration options.
3. Choose “Cash” as your accounting method (common for freelancers).
4. Submit your application and await confirmation.

Basics of PAYG and BAS Filing

• PAYG (Pay As You Go): PAYG instalments spread tax payments across the year. The ATO will assess your PAYG obligations based on last year’s income.
• BAS (Business Activity Statement): BAS reports GST collected from clients and GST paid on expenses. BAS is filed quarterly and includes your total sales (G1), GST on sales (1A), and GST credits (1B).

Steps to File BAS

1. Log into MyGov: Link your ATO account.
2. Fill Out Your BAS: Enter G1 (total sales), 1A (GST collected), and 1B (GST credits).
3. Submit by the Due Date: The ATO sends reminders, but mark the dates to avoid penalties.

Setting Money Aside for Taxes

1. Estimate Your Tax Percentage: Use your income tax bracket plus 10% for GST.
2. Separate Tax Savings Account: Transfer a set percentage from each invoice to a separate account to cover tax obligations.

Tip: Schedule regular tax-saving transfers to reduce the risk of tax debt and maintain steady cash flow.

 

Why not talk to Sole’s premier partner Accountants Direct who have a very affordable bookkeeping service that will do all the expense keeping and much more for you. 

5. Conclusion

Creating a Financial Routine
Establishing a regular financial routine can help you stay on top of expenses, taxes, and income goals. Here’s a simple routine to follow:

1. Weekly: Review your income and expenses, scan receipts, and log any new transactions.
2. Monthly: Reconcile bank transactions, update your budget, and track progress toward financial goals.
3. Quarterly: File BAS, review tax savings, and evaluate any changes needed to your budget.

Resource List
Recommended tools for ongoing financial management:

• Sole’s Expense Tracker: Integrates directly with bank accounts for automated expense tracking.
• ATO Simple Tax Calculator: To estimate tax savings.
• Freelancer Accounting Services: Consider partnering with a freelancer-focused accountant to streamline tax compliance.

What’s Next?

You’ve mastered the basics of financial management for freelancers. Now it’s time to build your client base! Move on to Guide 3 to learn effective strategies for finding, attracting, and managing clients to keep your business thriving.