Open a separate business account
Opening a bank account for your business that’s completely separate from your personal chequing account is one of the easiest ways to manage your money. There’s no need to worry about separating transactions since you’ll know that everything in your business account is business related.
Most financial institutions have accounts that are meant for businesses, but they could come with a high monthly fee. If you’re just freelancing, it might be a better idea to use a high-interest savings account with an online bank since they typically have no fees.
Improve your financial well-being
Set aside money for taxes
Every dollar you make as a freelancer is fully taxable. Yes, that includes those cash-only deals you make. As a general rule, you’ll want to set aside 25% of your income for tax purposes. However, if you’re already earning a high income from your regular job, or your side hustle is doing extremely well, you’ll want to save more. That’s because your side income is added to your regular income and you’ll be taxed accordingly.
It might be a good idea to set up a separate savings account for any funds that you’re putting aside for taxes that you’ll eventually need to pay. By doing this, you’ll ensure that you don’t spend that money elsewhere.
Track your expenses
Tracking your expenses as a freelancer is essential. Not only will you be able to see how much you’re making, but you’ll also be able to claim many of your business expenses on your taxes. Some of the most popular business expenses include:
- Business start-up costs
- Business-use-of-home expenses
- Fuel costs
- Bank charges
- Meals and entertainment
- Office expenses
- Internet and cell phone
Some of these expenses would likely be shared with personal use, so you would only claim what’s relevant to your business. For example, if you use your mobile 25% of the time for business purposes, you would claim 25% of your bill as a business expense.
Be sure to hang onto all your receipts and to download copies of your bills in case you get audited. Don’t freak out if you do get audited. Quite often the Canada Revenue Agency is simply looking for clarification and providing receipts will usually satisfy their concerns.
Wealthsimple x MoneyWise
You may or may not need to register for a GST/HST number
Freelancers aren’t required to register for a GST/HST number until they’ve earned $30,000 in freelance, self-employment, or small business income in any given calendar year. This is specific to freelance income, so you wouldn’t count your regular employment income. Once you cross that $30,000 threshold, you’re required to register for a GST/HST number within 29 days.
Once you have your GST/HST number, you’re required to start charging your clients taxes. Don’t panic if you haven’t charged taxes in the past, just tell your customers you’re now registered for GST/HST and you’re required to start collecting tax by law.
It’s worth noting that clients outside of Canada are considered zero-rated, so taxes don’t apply to them. You’ll also want to pay attention to how taxes work on freelance websites such as Fiverr or Upwork. Some of them may collect and remit taxes on your behalf, but not all of them.
Set some goals
People pick up a side hustle for a variety of reasons. It can be a good temporary income if you’re between jobs. It can also be appealing to people who are looking to earn extra money for travel or a home down payment. Whatever your reasons, you should try to set some goals so you’re constantly working towards something.
Take yours truly, for instance. When I first started freelancing, I did it for extra income. However, I quickly realized that I could change careers if I kept working at my side gig. This was highly appealing to me because I worked odd hours at my full-time job. Although the transition took a few years, I now freelance full-time. This has allowed me to spend more meaningful time with my family.
Don’t be afraid to spend a little
Although your side hustle is technically extra income, you should think of it as part of your overall yearly income. Save a portion of it for your goals, but also don’t be afraid to spend part of it on something you enjoy.
The key thing is moderation. There’s no point in putting the time and effort into a side hustle if you’re just going to blow all the money you make. You’ll just end up working yourself into the ground. Find that balance and keep hustling — as long as it’s enjoyable.
You're 5 minutes away from the best mortgage
Searching for your perfect mortgage shouldn’t be hard.
Homewise is an online brokerage that will negotiate on your behalf with more than 30 big banks and other lenders, completely free, and it only takes five minutes to apply.
If you're in the market for a new mortgage, or if you're looking to refinance before interest rates rise again, go to Homewise now and answer a few simple questions to get started.