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Today I wanted to talk about finances and specifically about managing your finances as a freelancer. There’s many reasons why this can be stressful. Obviously you’re not necessarily going to have a guaranteed consistent income when you first start freelancing.
This can be really scary. It also means it’s hard to plan ahead and figure out how much percentage wise you should be saving for things like projects new business ideas, and also things like your tax return.
Ideally, we’d all want a financial cushion to make sure that we’re prepared for those weeks or months when it’s a lot quieter. However, life doesn’t always work that way, and the nature of freelance life being sporadic and interchangeable means we really have to keep track of our finances because it, things can quickly change.
Today I wanted to share my top tips for keeping on track of your finances when you’re self employed.
My first tip would be to use an income and expenses tracker to make sure you know exactly what you’re earning and where your expenses are going to every month, rather than waiting until the tax return deadline. This can be really really helpful. It also means you can spot quickly if you’re spending too much, perhaps as an expense that you don’t need to pay for every single month and you don’t need to use that every single month, or perhaps is something that you’re paying too much for, and you could perhaps shop around to find a little bit cheaper.
Or perhaps it’s the opposite problem your expenses are okay, but you’re just not earning enough to tip the balance in your favour, using a regular budget tracker to look at your income and expenses is a really simple way of keeping on top of your finances.
Ideally, before you start out as a freelancer, you need a few months savings for a rainy day fund, a lot of freelancers advise having a three month buffer of your salary, which means if it takes you a little bit while to get started or you find yourself with a setback in the first year, you have a breather of a few months salary to rely on.
Of course this isn’t always possible, especially if your hand is forced and you might go freelance due to leaving a job quickly. However, one thing you can do is to make sure that you’re not in any debt, or that your debt is controlled and figured out before you take the plunge and go freelance. There’s many many services that can help with this such as debt consolidation services (see more here) speaking to your Citizens Advice Bureau or speaking to your bank to get a handle on things like overdraft any existing debt or any debt that you that you predict to encounter when starting your business.
Make sure it is feasible-for some people they might need to keep working on their freelance dream as a side hustle, while staying employed permanently why they figure out their debt situation, because there’s nothing worse than getting yourself into more and more debt.
I think there’s a real myth that you have to invest hugely in yourself when you’re freelancing. In fact, the art of being a sole trader is essentially free, you have to just register on HMRC website and you don’t necessarily have to register yourself at company house yet unless you want to be a limited company-you could just start being a sole trader tomorrow.
In terms of setup fees, obviously some people would need an office, but many freelancers just work from high a coffee shop or a co working space. Interms of equipment you might feel as if you need to buy the latest equipment, but I just use an inexpensive Chromebook, to do my work. So you might be surprised at how little upfront costs you need to actually get started with freelancing, dip your toe into it and start working before making those bigger purchases.
Of course if things go really well down the line, you might want to invest in a higher end laptop or photography equipment, or perhaps rent out an office, but for the time being, or you really need is yourself and some great ideas.
So there are various different software that you can use to manage your invoices, I personally use Underpinned for invoices, which helps me send out my invoices really easily. However, I prefer each week to make a physical list in my notebook of any invoices that I’m jus rather than relying on electronic tracking systems.
Of course there are systems that will send out automated reminders and everything like that. But unless you’re really in a huge business, I personally find it manageable enough to write a list on the side of my to do list every week of all the invoices that have been sent. And then at the end of the week, or go back cross off any that have been paid, create a new list on the following weeks page with those of carried over at any new invoices. Because of this, I feel I’ve really on top of any late invoices and as soon as I hit 30 days, I can then go ahead and invoice late fees, which is something I talk about in my get paid ebook.
I didn’t use business banking for a long time and the truth is you don’t really need to-it’s recommended that you use a business bank account as a sole trader, but it certainly isn’t a legal requirement and it’s not something HMRC, are going to make you do. However, business banking can make things easier in the sense that you can separate your personal and business transactions really really easily. It also means that you take yourself seriously as a business and you treat income and expenses rather than just spending all of the money that comes into your account. So people with a business account, then pay themselves a set monthly fee, so you get the same wage each months, and some sort of consistency. So if you have a really great month you’ll still have the same wage but if you have a slower month you’ll still earn the same wage-so it can also help you be a lot more organised when it comes to things like expenses and taxes, and so on.
I hope these tips have been useful in helping you think about how to get to grips as a freelancer with your finances. Let me know if you have any questions, or what you find the hardest about managing your money as a self employed person.