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How to keep track of freelancer finances

Freelancing is a lifestyle. You might work a normal 9-5 whilst freelancing, but many freelancers choose to differentiate their hours around the work they have and what else they want to do with their weeks. Some work shorter hours, some longer. Some work four-day weeks. Freelancers have a lot of admin to do alongside the work they are undertaking. As there is no finance department for a freelancer, most have to do that side of things themselves. Of course, you could get a bookkeeper involved but it is still important to have a handle on your freelancer finances. Let's have a look at everything you need to know so you can breeze through the freelance lifestyle, enjoying the flexibility and work you choose. 

inked woman laptop

Set a budget & stick to it

One of the most important things to do when you are working as a freelancer is put a budget in place. Not only to put one in place but to stick to it too. You need to know how much you are spending every week to ensure you don't overspend. BUsinesses need to spend money, yes, but without a budget to reign you in, things can quickly get out of control. There might be months where you need to spend more than you usually world during other months. When the insurance is due for example.

However, freelancers can plan throughout the year for what they need to spend. Of course, if your laptop dies and you need a new one, you might need to spend more than you have budgeted for this month, in order to be able to physically do the work you have. However, keeping within the limitations of your budget will help you with your money management. 

woman coffee

Track your finances & manage your money

Keeping a complete track of your finances is important. We've focused on the budget and the money you are spending as a freelancer. However, you need to look at what money is coming in as well. If you are spending more than you are earning, things can go from bad to worse pretty quickly. Regular checks on your finances will help you to spot patterns and errors that you can chase up with the bank or perhaps with clients. When we don't keep an eye on our finances, we might not realise that things haven't been paid or mistakes have been made. Yes, you are busy with the work you are being paid to do.

However, without a frequent check on the money side of things, you can quickly fall behind with your admin. Get into the habit of regular checks on your bank. You can download the app to your smartphone to make this easier. You can even do this as you walk to the coffee shop to work from or on your train into town. Putting this habit into place will set you up for a good work-life, knowing what is happening with your freelancer finances. 

freelancer finances

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Set aside money to pay your taxes

With no employer, there is no finance department organising all the different aspects of your pay. This means there is no one but you taking control of your taxes. You will likely invoice the client and then get the invoice paid directly into your account. This means you need to put aside a portion of your earnings to pay your tax. If you can project how much you are likely to earn in a tax year, you can figure out how much cash you need to set aside for tax. Your bookkeeper can help you project this based on numbers from previous months.

Without setting aside some of your income to settle your tax return, you will face a bill at the end of the tax year with no way to pay it. Your personal allowance that you can earn before paying tax is 12,570 per year. Anything above that up to £37,700 you will pay 20% tax on. You'll pay 40% on anything between £37,701 to £150,000 and 45% on annual earnings above £150,000. These percentages are important to know when you are in control of your freelancer finances. There are also student loan payments and National Insurance contributions to take care of. 

freelancer finances

Separate your business and personal finances

When you start freelancing, be sure to set up a separate bank account. Splitting your business and personal money is important. Not only does it make everything easier when it comes to filling in your tax return, you know how your work is going with a simple glance.

Having a business account where all your invoices are paid into and all your freelancer transactions are taken from helps you to see the health of the business. You'll also be able to pay yourself by transferring money into your personal one when you are able to. By doing this you are following something which is commonplace and makes financial sense. You'll look more professional to clients, whilst ensuring you don't accidentally spend money you shouldn't be spending. 

freelancer finances

Have a plan in place for irregular pay, chasing invoices & holidays

Freelancers often find themselves chasing invoices. One of the best things to do with this is to put some terms and conditions at the bottom of your invoice. Include your payment terms and any charges should invoices not be paid within those terms. You are well within your rights to do this and can read up more about those charges here. Planning for irregular pay can be difficult. It's a great idea to always have cash in your business bank account and make sure any late payments are chased up. This is why you need to keep a regular eye on your freelancer finances.

Invoice frequently, so any regular clients get into a pattern of paying you. This can help with your cash flow. You can also squirrel a bit of money aside into an emergency business fund. If you have unexpected payments to make and are waiting for invoices to be paid, this can certainly help. Planning for holidays can also be hard for freelancers because if you aren't doing the work, you aren't getting paid. Downtime is important though so it might be a case of doing a bit of extra work the week before to allow you to take some time off. Or plan some extra time for projects you take on to allow for those all-important holidays. 

freelancer finances

It is so important to keep track of your freelancer finances as this will allow you to work in the way that you love. The flexibility and relaxed approach, along with a great balance is the reason many people get into this way of work. Keeping an eye on your finances will help your business stay healthy. 

freelancer finances

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