One of my first real jobs out of college was in publishing and that first paycheck was a wake-up call, to say the least. I was making about $26,000 before taxes and living in an expensive city. Sufficient to say, I wasn’t graduating from college ramen anytime soon.
After a couple months of running out of cash, I decided to try an exercise to see where all my money was going. I saved every single receipt for every purchase and put them into envelopes labeled with the month. If I bought gum, I kept the receipt. If I didn’t get a receipt, I jotted down the price on a scrap of paper and put it in the envelope. I was meticulous about it, probably because I had no money to do anything else remotely fun.
At the end of each month, I reviewed where exactly all my money was going. I did this for a full year and learned a lot about how I spent and saved in the process. It was my very first money habit, and that shoebox of monthly envelopes taught me a ton about personal finance and was pivotal in helping me keep to a budget.
Graduating from the shoe box
Fortunately these days there are much smarter people than me with even better money habits than stuffing receipts into an envelope. As a serial entrepreneur and former CEO of Billy, Zeke Camusio knows all about better money habits to subscribe to. In his eBook The Wealthy Freelancer, he outlines how spending just 15 minutes each week on these habits impacted his own finances in huge ways. He writes that The Money Habit (TMH):
- Lowered my taxes significantly. By recording all my business expenses in a timely manner, I’ve been able to comply with all the IRS regulations and legally lower my taxes significantly.
- Eliminated paper receipts from my life. The IRS requires that we keep receipts for all our business expenses for the last six years, but I didn’t like the idea of having a drawer full of paper receipts. Luckily, TMH makes it really easy to store all my receipts digitally.
- Made it easier to get paid on time. TMH has helped me keep track of the payments I receive, remind my clients to pay overdue invoices and see how much money I’d be receiving in the near future.
- Saved me valuable time. I’ve been able to automate boring tasks like invoicing clients and sending payment reminders, so I can spend my time growing my business, cranking out client work or walking in the park.
- Reduced the risk of an IRS audit. By reconciling my business bank account and double-checking that all my transactions are properly categorized, I’ve been able to proactively find errors that might have triggered IRS audits.
- Helped me take control of my cash. TMH shows me how much money I make, how much I’ll have coming into my account in the near future, how I’m spending my cash, how much money I need to set aside for taxes every month, and how well my business is doing. In short, TMH has helped me take control of my money.
Saving more than you think
Those envelopes in the shoebox helped me save some amount of money, but these new habits can help anyone save a whole lot more. According to Sandy Botkin, former IRS tax attorney and senior tax law specialist (and current CPA), small business owners leave between $4,000 to $10,000 on the table every year because they were squandering deductions. This includes freelancers who may be a one-person shop, so it’s clear that the savings can be significant.
Think that’s not likely for you? Check out this list of potential deductions from Freelancers Union and think again. Deductions you may not have considered include:
- Advertising costs for your freelance business
- Continuing education
- Bank fees
- Retirement contributions
And the best way to make sure none of these deductions fall through the cracks is to get into The Money Habit of categorizing and documenting your expenses. This way, when you do work with an accountant come tax season, you’re not wasting time tracking down receipts, but using this time to track down worthwhile deductions together.
Get into the Habit today
It takes just 15 minutes a week to develop the habits that will save you thousands of dollars each year, and the best part is that it’s so easy. Download The Wealthy Freelancer and spend your first 15 minutes learning about the other habits to get into. It’s an invaluable resource for seasoned and budding freelancers to make sure they get their money right!
Discover how to lower your taxes without increasing the risk of being audited by the IRS. Learn why it’s up to you – not your accountant – to track your expenses, and why doing your taxes once a year can result on most of your deductions being rejected.