Last editedMay 20222 min read
The subject of freelance finance is often overlooked, but it’s an essential skill. There are many advantages to working as a freelancer. They include the freedom to set your own timetable, work at your own pace and grow your business as you want to. Along with these plus points, however, comes the extra pressure of having to organise your own finances.
With no set monthly or weekly income to rely on, a freelancer has to be certain that they manage the cash flow moving through their business. This is to ensure they always have enough to live on, together with sufficient funds to keep the business ticking over. It’s also important to have money set aside for unexpected expenses and scheduled costs such as tax bills.
Finance tips for freelancers
Here at GoCardless, we work with freelancers all over the world. We help them organise their finances in a way that minimises stress and lets them concentrate on their business. One aspect of freelancing that makes it difficult to keep grip on finances is ensuring that payments from customers come in regularly and on time. Working with GoCardless offers a number of alternative methods of ensuring that chasing and accepting payments becomes a much simpler task:
The Direct Debit option offers a pull-based payment method. This means that freelancers get paid automatically on a day of their choosing, rather than having to send out invoices and chase reimbursement.
We work with major accounting partners across the globe, enabling freelancers to raise and reconcile invoices automatically via a number of automated accounting platforms and apps.
We also offer the Instant Bank Pay option, which makes it quick and simple for freelancers to take one-off, same-day payments via paylink. This is particularly useful when a freelancer works with a client to deliver a single project, or on services that fall outside the scope of an existing retainer.
Personal finance for freelancers
As well as taking advantage of the many options working with GoCardless offers, freelancers can use the following tips to handle their finances effectively:
Plan for the ups and downs. For most freelancers, their income will vary greatly. It’s possible to plan for slower periods when not as much work is coming in by working out an average income. Take the amount earned in the previous 12 months, divide by 12 and the figure will be your average monthly earnings.
If you’ve been freelancing long enough, you can do this for several business years in order to work out a longer-term average. This figure can then provide a baseline for budgetary planning, with extra money in the more productive months put aside for those months when work slows down a little.
Allow for taxes. Although one of the great challenges of freelancing is the uncertainty of whatever financial challenges you’ll face, one definite expense each year is your tax bill. For that reason, it pays to set aside money from your monthly earnings. If you’re in the 20% income tax bracket, for example, set up a monthly deposit comprising 20% of the previous year’s monthly income.
We can help
If you’re interested in finding out more about managing finances as a freelancer, get in touch with our financial experts. Discover how GoCardless can help you with ad hoc payments or recurring payments.