How to manage your finances as a freelancer

Going freelance can be fun and exciting – but it also means that as well as your own boss, you’ll be your own accountant.

WORDS BY NICOLE GARCÍA MÉRIDA
HEADER DESIGN BY YOSEF PHELAN

So you’ve decided to strike out on your own and join the big bad world of freelancing. Good for you! It has its perks for sure – the agency, the flexibility, the ability to work from pretty much wherever you want. But you are also now 100% responsible for managing your finances.

It can be daunting, particularly for those of us not numerically inclined. But ultimately, managing your money as a freelancer isn’t really about the numbers, it’s more so about staying on top of things.

Spreadsheets are your best friends

Familiarise yourself with spreadsheets. Aside from making a budget, track the projects you’re working on and how much tax you’re going to have to pay so that you know the net total you’re going to end up with.

“When I left the corporate world to focus on freelance journalism I never thought I’d look at a spreadsheet again, but they’ve saved my life – or at least my bank balance – on multiple occasions,” says Kaite Welsh, who’s been freelance for most of her journalism career.

“I track every query I send and how much time I spend on it, from inception to payment if it gets picked up,” adds Welsh. “That means I can see at a glance via the glorious medium of pie charts where most of my time is spent, and which fields or publications most of my money is coming from.”

Diversify your income stream

That said, it’s important to find different ways to use your skills. “There’s often a difference between the work you do for clout and the work you do for income,” adds Welsh. “The smartest thing I ever did when it came to freelance finances was to keep track of both my most profitable clients and my most frequent clients, and realising that they weren’t always the same thing was crucial to developing a sustainable career.”

Ash Jayy, a freelance journalist and social media consultant, agrees. “At first, I was focused 100% on influencer marketing,” says Jayy. “Now, I offer influencer marketing, social media consulting, content creation (and so much more) as well as my work as a freelance journalist. This means that if one branch of my freelance tree dries up for a while, I have other things I can focus on.”

Taking on jobs that fulfil you is important, but it’s hard to be fulfilled when you’re stressed about covering your basic needs.

"Taking on jobs that fulfil you is important, but it’s hard to be fulfilled when you’re stressed about covering your basic needs."

Prioritise your taxes

Speaking of covering basic needs – your tax bill is about to become one of them. When you’re employed, your employer takes care of income tax and national insurance. Now it’s your job to make sure you don’t get done for tax avoidance.

First you have to make sure you have enough to cover your taxes. The basic rate of income tax is 20 per cent, while national insurance is around 13 per cent, so around 30 per cent of your income will go to taxes. This increases if you make over a certain amount but is a good rule of thumb.

“[Tax bills] always sneak up on you,” says Jayy. “That first full year was way bigger than I expected it to be. Now, I always put away 30 per cent of every single invoice, even the small ones. That way, I know I’ll have enough to cover my tax bill plus my accountant fees and I usually have a little bit left over.”

Consider getting an accountant

That takes me on nicely to the next point – if this is entirely all too much, and honestly it can be, think about getting an accountant.

“People will tell you the return is easy and can be done in an afternoon, but if you’re someone who makes a living from words, not numbers, it’s better to call in a professional,” says freelance journalist Hilary Mitchell. “I once tried to do it myself and accidentally triggered a £1700 rebate, which I spent. HMRC asked for it back, I didn’t have it and it was a whole thing.”

“Also, an accountant can often find ways for you to save money on your tax bill – as much money as they are costing you, sometimes,” adds Mitchell. “So in that respect they can pay for themselves.”

Don’t forget your pension

When you’re employed you’re automatically enrolled into pension contributions, and most of the time your employer will top these up. These are then invested into pension funds and benefit from compound interest. This is the interest you earn on money you’ve saved, plus the interest you earn on that, so the longer you let it sit there, the more it will grow without you having to do anything.

Once again, this ends when you go freelance. While national insurance does go towards your state pension, it’s not really recommended you rely solely on that in retirement. Currently it’s just above £200 a week, so you want to make sure you’re supplementing it with a private pension.

The minimum contribution into workplace pensions is around 5%, but you can do 3% or 8% – as long as you’re contributing something into a private pension. These are offered by different providers, so make sure you do your research before trusting one with your money, and if in doubt always seek financial advice.

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