Being a freelancer is a tough battle, especially if you’re starting out and are bit of an unknown. As every penny counts when working for yourself, so effectively managing your money can be the difference between success and failure. Knowing how to save money will help you gain a better overall picture of your businesses health which is integral if you want to make a career for yourself.
You could be the best writer in the world but if you don’t manage your finances well, you’re not going to last very long and speaking from experience, you can wonderfully face penalties from the tax man if you don’t accurately record your work.
I learnt the hard way but you don’t have! By considering a few of these money saving methods, you will be able to function in a cost effective manner that will set you up for success.
Getting an accountant is a big step in a freelancing career. Accountants are generally highly useful and they are often used to help complete books and file tax returns. Unaware, freelancers typically think they need one as they are not financially savvy and this is when they lose money they don’t need to.
Whilst it does ease the burden of work, accountants are a big expense for small set ups. The mistake most make is that they pay for their services when their income doesn’t warrant actually needing one. Blinded by fear of tax issues, they get an accountant without releasing that they could do it themselves and save a lot by doing so.
By taking the time to evaluate the business and learn how to manage the accounts, it will pay you dividends in the long run. With the advancements in technology, bookkeeping has never been easier and rather than manually keep your finances, there are now many types of accounting software that will simplify the process for you. A great way cut out a big monthly/annual expense of an accountant, by keeping your own books, you will keep your overheads low, benefiting the bottom line of your business.
The Day Job
This is where you need to be realistic and most importantly, practical with your work. It can be hard to swallow but as much as you want to fully focussed on developing your career you need to be objective. You may be confident in your ability but if you’re expecting jobs to flood in when you’re starting out, it is unlikely. For me, it sounded like a great idea but what I rapidly found out was that I was struggling with my money. With bills still frequently coming in as well as your day to day living expenses, you find out that it is hard to keep up without a consistent income. By stepping back and looking at your situation, it is usually better to keep your day job (at least part time) for the first few months or year, until your workload increases to a more liveable standard.
Saving is simple but you need to have self control and mismanaging your finances is bad path to take. An easy process, it comes down to putting money aside consistently and as early as possible. You should start by tracking your income and expenses over the course of a few months. You can then review how much money you expect to have left over at the end of each month, which you can put into savings.
As freelancing is up and down (and seasonal depending on sector), months may be quiet. If you’ve budgeted correctly and have worked out your monthly costs, it is at this point that you can refer to the savings to get you through. Use detailed logs or personal finance software to ensure you have the data organized and stored for ease of use. If your income is higher one month then save the excess so that when you make less, you can top yourself up from your savings. That way your lifestyle is never interrupted, your bills are paid and you’re not worrying.
A simple step but it is it often overlooked. In freelancing, across the board, income is inconsistent so its critical that you set a strategy that will support you.
As a freelancer, it is important to get your head around tax issues. As mentioned with the accountancy issue, it you’re financially knowledgeable, you will have the awareness to make clever cost effective business decisions.
Often freelancers start by registering as a self-employed sole trader. This is a straightforward process which has its own perks but as you grow, becoming a limited company could be highly beneficial for your money.
The big advantage is that you will pay less personal tax than that of a sole trader. When you are the director of a limited company, you have the option of paying yourself a small salary, taking the bulk your income in the form of dividends. You will need to pay Corporation Tax and a 20% small businesses profit rate however, by doing this you can minimize the amount of NI you have to pay which works out more beneficial for you.