People can work freelance in a vast range of industries and sectors. However, there are certain core elements of working freelance that unite freelancers around the globe – and one of the key ones is money matters.
For the majority of freelancers, paying for professional accountancy services is a sensible approach to financial management. The relatively small cost of such a service can offer a wonderful source of protection from the potentially much larger cost of making a mistake with your taxes.
Financial management may not be your strength, but as a freelancer it is you and you alone who is in charge of issuing invoices, chasing payments and looking after the financial side of your work. This takes time and attention to detail. You need to ensure that each and every invoice you issue is paid on time, as a well managed cash flow is an essential part of a smooth running freelance lifestyle.
As a freelancer, it’s important to have a contingency fund. When companies hit hard times they can sell offices, make staff redundant and reshape the services that they deliver, but as a freelancer you have nobody to fall back on other than yourself. A contingency fund can therefore offer a great deal of reassurance.
The easiest way to build up your contingency fund is to put a certain percentage of each and every payment you receive aside. Doing this as a routine part of your business means that the fund will gradually build up in the background, so that it’s there when you need it. And if you never need it then you have a nice little next egg for your retirement.
You can plan for your tax bills in just the same way as you do your contingency fund. If you know that you pay (for example) 20% tax, then put aside 20% of every payment that you receive as soon as the funds reach your bank account. This means that when the tax bill arrives you can just calmly pay it, rather than despairing about how you’re going to come up with such a vast some of money!
Take the time to think through your costs not just for the next month or two but for the whole year. Some taxes are due monthly, others annually. There are also costs like insurance and professional members that may need to be paid yearly. By planning ahead for the next 12 months, you can be confident that you have a clear picture of your expenditure and avoid any nasty, last-minutes surprises when renewal letters arrive.
What are your top tips for proactive financial management as a freelancer? How much time do you dedicate to managing your money? Let us know your thoughts in the comments section.