There are two million freelancers in the UK, according to the Association of Independent Professional and the Self Employed, and this number is only set to rise. Of course, due to the nature of this way of working, people in the freelancing community don’t always have a steady income — you might make more than enough money one month, and then next to nothing the next. It just depends on how many projects you secure. And, freelancers typically won’t receive sick or holiday pay, which is something you’ll need to account for.
So, as a freelancer, not only do you need to ensure the money you earn covers your day-to-day living expenses, but you also need to plan and save so you can comfortably get through any dry spells. Here, we’re going to share some money saving hacks that will help you with that. Read on to find out more.
Set money aside to pay your taxes
When it comes to paying your taxes, ignorance isn’t bliss. Every month, you should be analysing how much money you’ve made so far this tax year and putting an appropriate amount aside. This way, when you eventually need to fill out your tax return, you won’t receive any nasty surprises and should be able to cover the bill without any issues.
We would highly recommend using a tool like TaxScouts’ tax calculator, which will help you to work out how much you’re going to owe in both income tax and National Insurance contributions. You can enter both your monthly and annual earnings, which will help you to keep track of what you actually owe so far, and what you can expect to pay for the entire year, based on your own projections. You can then factor this into your budgeting as you go.
Start paying into a pension
Because freelancers are self-employed, you won’t automatically receive a workplace pension. Instead, you’ll need to set up a pension yourself. There’s no denying that saving for your retirement can be more difficult as a freelancer: you won’t benefit from employer contributions, and potentially irregular income patterns can make saving hard. But, it’s important that you prepare for the future as best you can.
The Money Advice Service has a comprehensive guide to pensions for the self-employed, which is well worth a read, as it contains all of the information you’ll need. It explains what you can expect to receive from your State Pension, and offers advice for choosing the right pension scheme, as well as making the most of your savings.
Know which business expenses you can deduct from your taxable profits
Even when you’re self-employed, your business will have a range of running costs. As long as they’re allowable expenses, you can deduct these to work out your taxable profit. To ensure you aren’t paying more tax than you need to, it’s important that you know what you can and can’t claim for. The business expenses you can deduct from your taxable profits include:
- Travel costs
- The cost of things you buy to sell on (i.e. stock)
- The cost of your business premises
- Your advertising and marketing costs.
The government has a full list of what you’re allowed to claim on, and explains what you need to consider when making your calculations in their guide to expenses if you’re self-employed.
Find a way to ensure clients pay you on time
Do you often find that you have to chase your clients for payment? When you have bills to pay and other work you could be getting on with, this can be incredibly frustrating. Fortunately, there are some steps you can take to make it more likely for you to be paid on time.
Start by letting new clients know exactly what you expect when it comes to payment: whether you will require any money up front, how much you charge for your services, and how long they’ll have to pay your invoices. This will ensure that, from the very beginning, everyone is on the same page.
It’s also vital that you make it as easy as possible for your clients to pay you. Move any obstacles out of their way by providing your bank details on every invoice, including any PO numbers they’ve supplied, and sending your invoice directly to the right person. A lot of businesses pay all of the people and companies they work with on a particular day or week of the month, so it’s worth asking about this so you can always charge them in time.
Offering online payments is also a great idea, so clients can pay you using a credit card. There’s typically a fee for this, but it can make things much easier for everyone. PayPal and Stripe both offer services that will allow you to set this up, and they’ll both work well with any accounting software you might already be using.
Automate your savings
When you don’t have a reliable stream of income that covers all of your living expenses, putting money into your savings can feel risky or even impossible. But, it can be done.
If you’re not sure whether you can afford to put any money away each month, or you’re not confident about coming up with a reasonable and realistic figure you can save, why not automate it? There are programmes and apps out there that will compare your earnings, outgoings, and then regularly move small amounts into your savings for you. The likes of Chip can do a great job of finding a balance so, day-to-day, you don’t feel like you have less money in your bank account. You might be surprised how quickly your savings can add up bit by bit.
When you’re a freelancer, it’s incredibly important that you have a good grasp on your finances. A lot of things, from setting up your pension to doing your taxes, is all down to you. And, you need to make sure that you always have enough money to get you through any dry spells you might experience. Take these tips on board and you should find it much easier to manage your money, prepare for the future, and receive your payments on time.