Tips for New Freelancers to Manage Their Finances

There can be no doubt that the Covid-19 pandemic has had a huge impact on the way that people work. Whether it is the rise in remote working, the move towards flexible hours or even the number of people re-training for new careers – the world of work looks completely different on the other side of Covid-19. 

In the same vein, according to FreelanceUK, 34% of current freelancers didn’t start working that way until after March 2020 when the pandemic hit. This shows that a massive section of the workforce has moved to freelance work as a result of the pandemic. 

But with a generation of new freelance workers taking on this new way of operating for the first time, it’s not surprising that many have found it hard to adjust. Working as a freelancer means taking a very different approach to managing your finances, and if you have found yourself freelancing, it’s a great idea to equip yourself with as much information as possible. 

Separate Your Business and Personal Finances

“Your business revenue is not the same as your personal income,” warns Chris Plumridge, Director at Wellden Turnbull “it makes life a lot easier if you don’t get the two muddled up. Have a separate business bank account so you can track your cash flow. Online banking is highly recommended, and many accounts are free to create, with no minimum balance requirements or bank charges, unlike some of the more traditional high street banks.”

Many freelancers start their work and simply have their money paid into their personal accounts. This can be an early mistake that is a hassle to change later down the line. It’s both easy and well worth opening up a new business account to track all your income. 

Prepare For Peaks and Troughs 

If you have been successful in the early days of your freelance work and have taken on a lot of new clients, it can give you a false sense of security. As freelance specialists, Upwork advises: “Your earnings can go up and down. Market conditions, the number of available jobs, and luck can all play a role in how much work you land and the money you make”. 

You need to be aware that, unlike a traditional employed role, freelancers can have good and bad periods and you should allow for both. Save extra accordingly when you go through a positive time, so that dry spells don’t become a real challenge. 

It is also worth nurturing potential new leads and clients even when you don’t think you’re going to need them. It is never possible to predict when clients will drop out and you will need to find alternatives. 

Think Like A Business – Not An Artist 

You need to ensure that you operate as a business, not as an individual. This takes a number of forms, and it starts with thinking about what you do as work, not as your passion. Many freelancers choose this path as it allows them to take on work that they are more interested in than their previous work.

But if you treat your work like a passion project and not as a commercial venture, you won’t be in the right headspace to make money from it. If your freelancing work is the way that you are going to earn a living, it’s hugely important to think like a business first. 

When you take on a project, think about whether it makes sense from a business perspective – not just whether you want to do it or not. Yes, freelancing does give you the freedom to pick and choose the projects you take, but remember that you are running a business here, and it is the goal of almost every business to make money. 

Manage Your Books Properly

If you are freelancing as your main source of income you need to make sure that it is all completely in line for tax purposes. Maintaining your books is a vital part of this and it is something that first-time freelancers can really struggle with. Remember, you aren’t just keeping records for the benefit of this tax year – all businesses have to keep all of their tax records on file for five years as a minimum. 

While some freelancers do find the time to manage their own finances and do their accounting work themselves, others prefer to outsource this complicated and time-consuming work to professionals. If you enjoy keeping track of your own numbers, this might not be necessary, but if you’re concerned, don’t be: many freelancers use professional accountants. 

Save Your Tax Early

If you are going freelance for the first time, that first tax bill can be a daunting prospect. Employees are used to seeing their tax go out in equal-sized portions throughout the year. And the fact that they never get their hands on that money in the first place can help to allow you to think of it as not being yours to begin with. 

So, when it comes to your tax bill – it is best to go into it with your eyes wide open. And that means saving throughout the year and not burying your head in the sand. 

“It can be a headache to remember to transfer some of every single payment you receive, depending on the frequency with which your payments come in,” says Paula Pant of The Balance “an alternate method could be to calculate how much money you earned last month, then set aside 25% to 30% of that before you begin paying the next month’s bills.”

In Summary

Freelancing can be a fantastic alternative to traditional employment. Getting it right takes a lot of work. That said, just employing a little separation between business and personal finances, treating freelancing as your job not your hobby, and keeping all your business records in order, will greatly assist with managing your new way of working. Professional services are always there if you need them too.