The freelancer’s guide to financial security

Freelance professionals have unique opportunities and challenges when it comes to creating a viable path to financial security. In exchange for increased flexibility, freelancers must create their own paychecks and financial strategy. The following dos and don’ts can help you build financial security along with a freelance career.

— Do set your own terms of service: Define your rates and payment terms to avoid ambiguity with your clients. It’s easier to enforce terms when you’ve spelled them out in your freelance contract and on your invoice. An established policy can also help you set and achieve your income goals and maintain sufficient cash flow.

— Do keep business and personal finances separate: Mixing business and personal expenses can cause trouble down the road. When tax time rolls around, it’s helpful to have your business expenses isolated, with receipts to back them up. Be sure to maintain complete business records going back a minimum of three years in case of an IRS audit. Also, consider paying yourself on a regular schedule from your business account. You can choose a set amount each month or a percentage of each project. Doing so will help you manage your personal expenses.

— Do maintain a healthy emergency fund: Freelance income often ebbs and flows in direct response to a variety of factors, including the economy, seasonality, changes in a key client’s needs or your capacity for projects. Build your liquid savings, which will allow you to subsidize your paycheck in a lean month.

— Do create a tax strategy: As a freelancer, you’re generally required to pay estimated taxes on a quarterly basis, with the remaining balance due by tax time of the following year. Self-employment taxes, which covers Social Security and Medicare, will also generally need to be paid quarterly. Paying the incorrect amount can result in costly penalties. Consult a tax advisor.

— Do prioritize saving for retirement: You won’t have the benefit of a company match, but you still have options to save for retirement, including a variety of IRAs and the individual 401(k). The key is to establish a habit, even if it means saving a modest amount monthly. Aim for 10 to15 percent as a target, saving more if you are able. Be aware of the rules regarding retirement plans for self-employed individuals, which can get complicated if you hire one or more employees.

— Don’t forget to review your financial position regularly: Keep careful watch over your cash flow and make sure you are invoicing your clients in a timely fashion to get paid as soon as possible. It may be cumbersome to keep track of all of your expenses, but there is power in knowing where your money is going. When you understand your income and expenses, you’re in a better position to steer your business in the most profitable direction.

— Don’t neglect health care: Health issues can arise at any time. Minimize the impact of a medical crisis and protect your financial stability by enrolling you and your family in a good health insurance plan. You can evaluate options from the health care marketplace or with an insurance provider.

— Don’t wait to create a plan for other long-term financial goals: Weddings, the birth of a child, college savings and a new home are just a few of the big-ticket life events that can be hard to plan for when your income varies. It helps to have a clear plan to accomplish multiple goals

It’s easy to let the unpredictability of your income hinder you from achieving financial confidence. No matter what your business or personal financial situation is today, you can take control and improve your circumstances for tomorrow.