Are you a freelancer?
Do you work for yourself?
Do you sell your skills to a wide variety of clients or organisations?
Does your financial survival depend on you supplying skills that someone else wants, when they want it and at a price they want to pay?
There’s a world of difference between being an employee and working for yourself, and it’s not just in terms of legalities, hours and who is supplying the coffee. This is especially true of your finances and accounting – an area that many people shy away from.
You’re probably already aware that, as a freelancer, you have more complex financial compliance requirements on you, particularly when it comes to your personal tax situation, never mind the extra money matters like ACC cover and Kiwisaver schemes.
Fortunately, there are many online resources to help you navigate these minefields, and if you feel that professional guidance is needed, there are plenty of tax agents and financial advisors who can point you in the right direction.
Tax is a by-product of earning income and it changes from year to year depending on rules and legislation, so what about other aspects of finance and accounting?
Not relevant? Too confusing? Unnecessary?
This type of analysis is very similar to the business accounting technique known as a Cost-Benefit Analysis, i.e. is the cost of doing the job (either the actual costs, or the value of lost income that you could have got somewhere else) worth the benefits that you would gain (possibly actual future income, improved personal branding or personal satisfaction)?
In accounting, we would seek to attribute actual values to each of the considerations and perform calculations to test the analysis and determine the right decision. When you are making similar types of decisions, you may be making them conceptually and on an emotional basis.
Costing is as old as the hills and is one of the foundations of an accounting specialism called Management Accounting. That does what it says: it is accounting for management purposes, helping you to make sound decisions about your future.
Costing occurs when you take all your known financial variables (living expenses, taxes, savings etc,) and number-crunch them to work out how many jobs you need to take on, at what rate, taking into account how many hours you have available to work.
You may end up with a range of answers, depending on how you valued and changed you variables. The point where the income and expenditure meet is known as your break-even point.
Even if the prospect of doing accounting causes your blood to run cold, chances are you have been using accounting techniques without even knowing it.
Accounting isn’t just about your tax return, there is a whole lot more that can help you to manage your finances.
This content was first offered to The Big Idea (but they never published it)