In today’s rapidly evolving work landscape, more and more professionals are embracing the freedom and flexibility of freelance work. Freelancing offers great opportunities for independence and creativity, but it also comes with its unique set of challenges, particularly when it comes to managing income.
In this guide, we offer tips on how best to manage your money as a freelancer, so you can take control of your finances and establish a strong foundation for long-term stability.
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Create a monthly budget
One of the first steps of managing your finances as a freelancer is to create a monthly budget. At this point, your incomings might be variable, so it can be best to start with your expenses. Make a note of all your outgoings, such as rent or mortgage, utility bills, loan repayments, food shopping, car maintenance/travel costs, etc. Make sure you include everything that will need to be paid for – it can be helpful to look at your bank statement for the last few months to include all outgoings.
Once you have all your outgoings, you’ll know what you need to have incoming. You can also have a secondary budget for the “nice to haves”, such as holidays abroad, dinners out, and additional shopping. You can refer to this in months where you might have extra income.
Track your income and outgoings
Once you’ve created your monthly budget, you’ll need to refer to it on an ongoing basis. You’ll need to log every expense and income to ensure you keep on top of managing your money. Whilst you might have a monthly budget, it can be best to put time aside at least every week, or maybe every day, to track your finances. This can help to break down the job and make sure nothing gets forgotten or left off.
You can track your finances in a spreadsheet or by using specific business budgeting software. You should also ensure you’re filing all your receipts and invoices – whether they be soft copies stored online or hard copies stored in a physical file – so you can refer back to them later if needed.
Separate your personal and business expenses
When you’re a freelancer, often the boundaries between work and personal life can be blurred. It can be hugely beneficial to set up a separate business bank account, to help to keep your finances separate.
A separate business bank account will make it easier to see the incomings and outgoings that relate to your business, and also make it simpler when it comes to tax reporting. It will also be simple to see how much you’re paying yourself as a salary, which might otherwise get lost if everything is in one bank account.
Plan for taxes
To work out your taxes, you’ll need a clear idea of your incomings and outgoings. If you’ve tracked your finances properly, this should be easy to see. However, even with this information, working out taxes can be tricky. It’s generally advised to put around 20% of your incomings away to cover your tax bill, which is the basic rate.
There will be certain tax deductions that will apply to you as a freelancer, such as business travel costs and advertising costs. If you work from home, you may also be able to claim deductions on a proportion of your rent or mortgage and utility bills.
Hire an accountant
Finances and taxes can be a complex field to navigate. Sometimes, it can be easier to hire a professional to help with your accounts and tax obligations. This will ensure you’re compliant with the current regulations and will ensure you avoid paying any fines or overpayments if you do anything incorrectly. Many accountancy firms will offer a range of services, such as tax compliance, financial planning, and more. A good accountant will be able to provide guidance to optimise your tax position and maximise your profits.
You will often be able to find a trusted and good quality accountant in your local area. You can start by speaking to fellow freelancers to see if they use an accountant they would recommend.
Alternatively, you can look online, for example, searching “accountants Portsmouth” and seeing which organisations come up. The benefit of looking online is that you will be able to see reviews from customers, on third-party sites like Google Reviews, and you’ll also be able to see on their own website what services they offer.
Establish an emergency fund
Freelancers can have peaks and troughs in their income. So, it can be helpful to have an emergency fund ready in case of any dry spells. It’s advised to have enough money saved to cover you for at least three or four months. You can put away a small amount every month, around 10% of your income, until you reach the desired amount. Once you have a suitable emergency fund, you can either choose to continue saving or use the money to invest back into your business.
