This essay took some time to complete. It took time because I am uncertain that the words, Fearless and Finance should go together. For me, they never have. As I have shared before, I grew up with limited financial circumstances. Worse, I grew up completely ignorant about money matters. And honey, money knowledge does matter.
But, a colleague recently shared a secret that revealed something to me… she has anxiety about finances too. This empowered me to think about ways I can help her quell her anxieties. Guess what? In writing this for her, it helped me reduce some of my anxieties too.
Anxiety is a double-edged sword. If it causes you to freeze in fear, that is unhealthy. But, if your anxiety spurs you into action then it can be a good thing. Her statement inspired me to write about what I do to reduce my financial anxiety. I focus this on tips that will help reduce anxiety while preparing your taxes.
I know this sounds like a Captain Obvious statement. But to reduce your anxiety, you need to make a plan. And to make a plan, you need to understand how you make and spend money. But, most people do not think about this until it is too late in the game.
Schedule time with your accountant or financial planning professional to ask questions. Do this before she begins to prepare your taxes. To prepare for your appointment, review the tips provided by IRS.
The information at this site will help you gain a basic understanding. Then go into your appointment armed with questions specific to your business. While there, ask for checklists that will help simplify your gathering process. If your financial professional does not have any, create your own from notes you take. Later, sell the templates to your accountant; remind her you requested some. Suggest that it will help her future clients.
Your plans will vary depending on your work. Create a 1099 checklist if you receive payments from more than one organization. Update your checklist throughout the year. You may forget one depending on your level of busy-ness. In January, start checking for all 1099s. Check them off as they come in. Have contact information to communicate with employers who have not sent you forms by February.
Spend the majority of your planning efforts on deductible expenses. Deductible expenses are those expenses which you incurred to be able to do the work that you are doing. A phone line and internet, if necessary for business, are deductible expenses. Provide all your monthly statements to your accountant to include in your taxes. Deductible expenses can also include seminars, books, and memberships to organizations. For the IRS’s list of deductible expenses, click this LINK
Now you have a plan to gather documents and information. Next, consider the method by which you will track this information. Putting it all in a shoe box and leaving it until the end does you nothing but harm. Thus, it is important to process the information with the right tools. Otherwise, you are back to anxiety-town.
You can do this in a way that works for you. Keep all paper copies or upload everything to the cloud. The choice is yours as only you know how you work best. But, if you need ideas, I do have specific recommendations based on the tools that work for me. If they are unlikely to work for you, don’t do them.
Of course, the first thought is that doing everything online will be easiest. I cannot be certain. I mix things up and use some old school methods. But, there are a few things that I cannot imagine without technology.
An example? Mileage. Logging and distinguishing miles driven for business vs. personal is tedious. I hated doing mileage before I discovered an online solution. When I learned of automatic mileage trackers, I threw my handwritten logs away. I use MileIQ
. Others exist. Now, every month I work through all the trips that the program has logged. I choose which are business and which are personal. Then, I email myself an expense report that I can turn over to my accountant at the end of the year. It takes five to ten minutes. Easy.
I also rely on online business management software. In the past, I have used Quickbooks. I appreciate that it is the industry standard. And, I like that my accountants know how to use it better than I do. Many new programs have emerged so find the one that works best for you.
Even though I receive a monthly credit card, I still track many work related expenses by receipt. But, I no longer keep all the receipts in a pile that needs to be processed at year’s end. I use a modified version of Dave Ramsey’s “envelope” method. I buy 8.5 x 11 white or manila envelopes. Then, I track each receipt on the outside of the envelope. I write on the envelope itself, you can choose to staple a lined sheet. Write the envelope title on the outside. Title examples include things like medical expenses, materials, travel expenses, etc.
You will want to write information about each receipt. You need four pieces of information from each receipt: purchase date, place of purchase, purchase price, and purchase purpose.
When tax time comes, take the envelopes to your accountant. All needed is on the outside while supporting evidence is located within. I provide the envelopes and electronic business management software to my accountant. This ensures that we do not miss anything.
Okay if at this point, you are thinking that my suggestions above are time consuming, you may be right. If on the last day of the year you read the articles I linked. Then you go meet up with your accountant. Then, you download apps, buy envelopes, go through each receipt one at a time, it will take a long time. And, it will drive you LOCA.
In my life, I have learned that it is not the big sweeping actions that help us improve. Rather, it is the small, consistent steps we take that end up making the big changes in our lives. So, to reduce the anxiety surrounding finances, consider the small steps you can make.
Once you have pulled all your tools together, it should take no more than 30 minutes to an hour once per month. So, start soon and take time each month to process the paperwork you have.
Once you have a system in place that works for you, it is important to review your needs once or twice per year. The reason is that as time passes, your freelance work can change. You may have new expenses that you want to include. Those changes can impact your financial approach.
These annual meetings will also spur important conversations. As your business grows, you have increased opportunities. Ask your accountant to discuss tax planning with retirement accounts and health insurance. These meetings will also help you grow your business management knowledge.
You can do it. If you take time to create a plan, make consistent efforts, and conduct consistent reviews of your business, you will begin to face finances fearlessly and without anxiety.
What steps do you take to face your finances fearlessly?