For freelancers, a fiscal reserve is a specific type of savings fund. It acts as your financial shock absorber for tax bills and unpredictable income.
What is Fiscal reserve?
A fiscal reserve is a dedicated pool of money you set aside from your freelance income. Its primary purpose is to cover future tax obligations. It also serves as a buffer for periods with little or no client work. Think of it as your business's essential safety net.
Why is this important?
It prevents you from spending money that isn't truly yours, like the portion owed for taxes. Without it, a large tax bill or a slow month can cause severe financial stress. It provides peace of mind and allows you to run your freelance business sustainably, without scrambling for funds.
How does it work?
You calculate a percentage of each payment you receive to allocate to your reserve. A common rule is to set aside 25-30% for taxes and another portion for income smoothing. You then deposit this money into a separate savings account immediately, so it's not mixed with your operating funds.
Pros and cons
The main pros are financial security, avoiding debt for taxes, and reducing stress during dry spells. The primary con is the discipline required to not touch the reserved funds for other expenses. It also means your immediate disposable income is lower, which requires careful budgeting.
Conclusion
Building a fiscal reserve is a non-negotiable practice for professional freelancers. It transforms financial uncertainty into manageable planning. Start small, be consistent, and you'll build the foundation for a resilient freelance career.
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