There are lots to like about going freelance. You can dictate your own hours while potentially earning more than you would working in-house. Managing money can be trickier, however, as you’ll need to get a handle on accounting while dealing with less predictable levels of income.
Thankfully there were almost 2.2 million freelancers in the UK in 2020 – so there are plenty of proven ways to get on top of things. Whether you’ve been working solo for a few months or you’re yet to make the switch, read practical money management tips for freelancers below.
Start with a solid budget
Freelance or not, we’re all told that it’s wise to create and maintain a budget from month to month. This becomes even more important when your income is irregular, however, so you’ll need to find ways to even out the highs and lows.
Budgeting doesn’t need to be complicated – it simply means making sure you don’t consistently spend more money than you bring in. Start by making sure your essentials are covered, then build in some flexibility for issues like late payments.
Create separate financial accounts
Your business and personal finances should remain separate both practically and mentally.
Create a separate bank account to receive and pay invoices and calculate tax and expenses against. You can then pay money into your personal account from here as and when you need to.
It can be helpful to have separate cards for different types of spending too. Prepaid debit cards are ideal for freelancers as you don’t need proof of income to apply for them.
Get to grips with taxes
Unless you’re an accountant or financial advisor, it’s unlikely that you’re going freelance for your love of taxes. You don’t even have to think about them in regular employment. But now you’re self-employed, you’ll need to know which taxes affect you to avoid paying hefty fines to HMRC.
You’ll need to complete a self-assessment at the start of each year. Putting your taxes aside each month will prevent this payment from coming as a shock.
Build a contingency fund
Emergency funds are another thing we’re often told to create in adult life – but again, they become crucial when you’re a freelancer. Having enough money set aside to cover a few months’ worth of expenses will come in handy if you suddenly lose a major client or go through a quieter period.
Depending on your profession, you could also need to replace lost or broken equipment from time to time. An emergency fund will help you out whenever you need a break or time off sick, too.
Going freelance could be the best thing to happen to your career. Follow these tips to keep the financial side of things under control.