Expense Tracking for Freelancers: Essential Tools and Tips
It is very important to manage your finances as a freelancer, because your financial situation will determine your success. The tracking of expenses is one of the most critical elements of financial management. It also helps you monitor your spending and thus you will be able to claim for all the expenses you are entitled to when filing your taxes. Below are some of the most useful tools and strategies for tracking expenses that can help any freelancer.
1. Choose the Right Expense Tracking Tools
Identifying the right tools that you can use to track your expenses will be of great importance in the management of your finances. Here are some popular options:
Accounting Software: Software as QuickBooks, FreshBooks and Xero have accounting functions that include management of expenses. Some of the features include; categorizing of expenses, reporting, and even sending of invoices to clients.
Mobile Apps: If you want to avoid the complexity, there are mobile applications that you can use such as Expensify or Wave. These apps help in taking pictures of receipts, sorting out expenses and monitoring the expenses incurred at any location and at any time.
Spreadsheets: For those who like to do things manually, it is possible to create a spreadsheet in Excel or Google Sheets and record the expenses. It is possible to create your own categories and formulas to classify your expenses and see how you spend your money.
2. Categorize Your Expenses
The categorization of expenses is a critical factor that helps in the tracking process. Common categories for freelancers include:
Office Supplies: This entails things such as paper, pen, and printer ink among other things.
Software and Subscriptions: Record the expenses that you incur in the software tools and services that you have used for your business.
Travel Expenses: Ensure to include transport, accommodation and feeding costs when attending to business related matters.
Marketing and Advertising: It is advisable to document all the expenses that are incurred in the promotion of the services.
Professional Development: This can be training courses, workshops or conferences that help in developing your skills.
When you are categorizing your expenses, you not only keep everything in order but also can easily find out where you can save some money.
3. Keep Digital Receipts
In the current world, it may be quite inconvenient to hold on to physical receipts. Rather than this, there are applications that can be used to capture and store receipts electronically. Shoeboxed and Receipt Bank are applications that allow you to take pictures of your receipts and sort them in the right way. This practice is useful not only in saving space but also in having a copy in case you need to access them again for taxes or expenses.
4. Regularly Review Your Expenses
It is recommended to take some time once a week or once a month to analyze your spending. It is through this that one is able to notice patterns and areas where he or she might be spending more than necessary. It also enables you to have a flexible budget that you can easily change whenever you want. This can be especially useful when you are approaching the tax season, so you have all the required data.
5. Separate Business and Personal Expenses
To make the process of tracking your expenses easier, it is recommended to have business and personal bank accounts and credit cards. This makes it easier to track the business expenses and there is no intermingling of the personal and business transactions which can be cumbersome when filing taxes.
6. Stay Informed About Tax Deductions
Being a freelancer, there are many ways through which you can claim for various taxes on the basis of your business expenses. Get to know the deductions that are allowed, for example, home office deductions, equipment, and travel expenses. Maintaining proper records of the expenses that you have incurred will enable you to easily claim these deductions and thus minimize the amount of tax that you will pay.
Conclusion
Freelancers must track their expenses if they want to control their money and get the most out of their tax deductions. Thus, selecting the right tools, categorizing expenses, keeping digital receipts, reviewing spending periodically, avoiding mixing business and personal finances, and being informed about tax deductions, one can manage his or her financial health. These are the strategies that if adopted will not only assist you in being organized but also lead to a more successful freelance career.