Everything You Need to Know About Money if You’re Going Freelance

Becoming self-employed doesn’t have to be a hopeless fantasy – but you do need to learn how to balance your books.

03 September 2021, 8:15am

With little else to do over the past 18 months, many of us have been overthinking, spiralling and generally picking apart every decision we’ve ever made.

For some, this has meant daydreaming about handing in your notice at your thankless 9 to 5 and winging it as a freelancer. But becoming self-employed doesn’t have to be a hopeless fantasy: a lot people manage it – and enjoy it way more than hour-long commutes, quarterly appraisals and socialising with people you would otherwise avoid at all costs.

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Sure, if you’re self-employed you’ve got to sort out your own taxes, navigate the tricky reality of not receiving sick pay and expect your monthly income to fluctuate massively. But there are many benefits – including being your own boss and having more autonomy in your day-to-day life. Before you take the plunge, though, there are a few things you should probably learn about balancing the books.

Save up some cash before quitting your job

While any freelancer can tell you that it’s perfectly normal to go through lull periods, your landlord probably won’t be so understanding if you tell them your rent is late because you’re “in your flop era”.

If you’re already employed, it’s best to build up some savings before going freelance, just in case you initially struggle to secure enough work to cover essential costs. “Aim to have one year of living expenses put away in savings,” says Joseph James, 35, a freelance business coach at Money, Mindset & Strategy. “This might sound like a lot at first, but if you commit to it, the peace of mind you are giving yourself is amazing.” 

Josh Crowe, 23, does a range of freelance work across PR, music production, copywriting and journalism. He stresses that it’s vital to account for the inevitable “ebb and flow” of freelancing. “I think everyone’s been guilty of overspending one month,” he says. “But when a month goes well, it’s an even better opportunity to save more rather than just spend a load of money.” So when your first big payment lands, resist the urge to splurge it all on Deliveroo and a Goodhood candle.

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Freelance social researcher and writer Chloë Maughan, 27, adds that it’s also important to account for dreaded late payments. “There isn't a regular payday, and sometimes my invoices can all come in late, which might mean that I get to the day where all of my utility bills are due to go out and I’ve actually not had enough money paid into my account to cover them,” she says. “So it's really, really crucial having that emergency fund in place.” 

Write down everything you spend and earn

Sounds simple, but you do not want to end up frantically attempting to calculate your annual earnings on the eve of the tax return deadline, crying down the phone to your dad as you beg him to explain how Excel works. Do your future self a favour by keeping tabs on all of your income and outgoing expenses from the word go.

I use spreadsheets and keep records of all of my sales and client invoices,” says Joseph. “I also sit down once a month and look at money coming in and expenses coming up.”

Chloë also keeps her finances organised on a spreadsheet. “I organise all of my [earnings] in quite a simple spreadsheet and I do it on a kind of month-by-month basis with formulas built in so it calculates things for me quite straightforwardly,” she explains.

Have multiple income streams and don’t get complacent

Chances are, if you’re just starting out, you’re not going to get loads of money from a single income stream. Many people work part-time jobs alongside freelancing, be it scanning tickets on the door at a nightclub, whipping up lattes three mornings a week or tutoring a GCSE student in the evenings. What you’re doing doesn’t really matter – what does matter is that you have at least some guaranteed, steady income.

Essentially, the important thing is to not get complacent – even when it seems like your inbox is brimming with countless new commissions and opportunities. As Josh says, “Always be on the lookout for new commissions so you’re just sort of set up for the next month and you don’t rely too much on a commission you’re already working on.”

Tax! Tax! Tax!

You’re not a true freelancer until you’ve woken up in a cold sweat at 3AM wondering if you’re going to go to jail forever for doing your tax return wrong. To help navigate the scary world of tax, Joseph recommends calling in a professional if you have the means to do so. “Pay an expert for their time and get the best advice possible,” he says. “Hiring a great accountant and seeing a tax advisor is a fabulous investment in yourself and takes the pressure off.”

If you can’t afford to hire an expert, Chloë suggests approaching things on a month-to-month basis. “I have a spreadsheet set up where each month I try to calculate my National Insurance contributions, my taxes and student loan repayments on the basis of what I earned that month,” she says. “I keep that money in a separate account.” 

While that might sound long to do each month, once you get into the swing of things, it’s actually not as daunting as it first seems. It’s just about turning it into a habit. 

Charge competitive rates

Most seasoned freelancers probably look back and cringe at the eye-wateringly low rates they once agreed to. As a baby freelancer, it’s important to know that it’s OK to negotiate your rates, and you should always start a dialogue with a client if you feel they’re underpaying you. If you’re unsure what you should be charging, ask around and find out from your peers. 

“[You should] set a rate that factors in the fact that you don’t receive things like pension, holiday pay or sickness pay. You’re always having to try and account for that, as well as inevitable dips in work,” says Chloë.

Joseph adds that it’s essential to be firm with your clients and continually reassess how much you should be charging. “As a freelancer, it’s easy to undercharge or accept late payments. But in the long-term, having strong boundaries and charging well for your work will absolutely be worth it,” he says. “Set clear money goals and think about what you would like to be charging next year and slowly begin to raise your fees.”

Freelancing might be daunting, tricky and even hellish at times. But if you figure out the money details and try not to freak out too much, it can be rewarding and definitely worth all the initial stress.

@serenathesmith / @lilyblkly

Tagged:

Freelance, freelancing, self employed, self-employment, money tips

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