Do you know what your paycheck includes as a freelancer? Many young freelancers who are just starting out make a very common mistake: spending most of their paycheck money on personal needs and living costs.
As freelancers, we have the responsibility to manage our money in the correct way. Freelance paychecks are very different than payroll paychecks. There is this thing called gross vs net income. As business owners, yes you as a freelancer are a business owner, you are also susceptible to other tax regulations besides your yearly income tax.
It’s important to understand what your freelance paycheck is made up of.
Listen to our podcast episode on what your freelance paycheck includes and get a better understanding of how you should handle your incoming money.
Here’s a quick rundown of a few important things you need to take into account.
In every country*, a transaction for products/services is taxed with a sales/turnover/self-employed tax. Every business owner, that’s you too, will have to pay this either quarterly or annually.
After taking off your sales/self-employment tax and potentially some business costs, you pay yourself. This is the reason why it’s handy to have a separate business and personal bank account.
What you receive from your business is your personal gross income.
You are still going to need to pay your yearly income tax, pension, and social securities before you’re left with the amount you can use for yourself, aka your net income.
Don’t let yourself get fooled by the numbers you’re offered! Take all the above into account when agreeing to certain payments, not all of the money you’re offered is actually going to end up in your wallet!