Fashion

I’m going freelance, how do I manage my money?


Fancy the life of a freelancer? You’re not alone. According to the Office for National Statistics, 4.85 million people in the UK were self-employed in 2018, an increase of 81,000 from 2017. Yes, there might be more freedom and a chance to sit in your pyjamas until midday, but is the grass really that much greener? Here, graphic designer Isabelle, 30, shares her biggest financial worries ahead of making the freelance leap and gets some expert advice from money coach and mentor Emma Maslin.

I’ve decided to leave my job after Christmas this year to go freelance. I guess it’s something I’ve always wanted to do – having the freedom to work under my own terms (i.e. working in my pyjamas at midday). I’m 30, recently married and currently living in London so if there was a time to do it, it’s definitely now. However, I know financially things are about to get a bit complicated.

One of my friends who went freelance last summer said her biggest challenge has been managing her money and I think I’m going to struggle too. While I already have some work confirmed from January, I know there will be no set payday like I currently have in my full-time job. She warned me that while some clients pay on time, others really stretch it past her ‘pay in 30 days’ terms, which can be problematic when it comes to budgeting.

My husband and I split the mortgage and the household bills and it’s going to be up to me to put aside my tax, student loan (which I feel like I’m going to be paying back for all of eternity), national insurance and all the other essentials. I’m worried that for the first few months when I’m still building up my client base, there won’t be much left in the pot to spend on personal stuff such as a new MacBook and few wardrobe pieces, like the chic AlexaChung blazer or Baukjen blouse I have my eye on. I know that sounds frivolous, but if I’m meeting potential new clients I need to look good – a sort of ‘I know my sh*t’ vibe. And because I try to buy sustainably, I want pieces that will last, which often means spending more but buying less often. This is going to be hard with my bank balance going up and down sporadically.

I do have a credit card but I’m wary of using it for things like clothes and accessories while I’m still finding my feet – the last thing I’ll want to be stressing about is paying off a late credit card bill with mounting interest while learning a whole new way of working.

I’ve also looked into getting a loan to tide me over for those extra bits at the beginning, but I’m aware that it might jeopardise my credit rating. My husband and I are starting to think about buying somewhere bigger within the next five years and I worry that it will be hard enough remortgaging as a freelancer, a bad credit rating probably won’t help.

Emma Maslin, money coach and mentor, says…


When you start, it might take a few months to build up a solid client base with consistent work. Before you take the leap, make sure you have a good pot of money – an emergency fund – in the bank to cover your living costs while you are establishing your freelance career. Ideally aim for three to six months of living expenses, even if you have some clients already. Remember, you won’t get paid while you are networking and pitching for new clients, so you’ll need money to pay the bills until you are able to start paying yourself when you do win new work.

On the tax side, you’ll need to register for self assessment as a sole trader with HMRC. It’s your responsibility to keep records of your business’s sales and expenses, complete a self assessment tax return every year, pay income tax on your profits and national insurance. The trick here is to be organised and stay on top of this rather than leaving it all until the end of the year. Set aside an hour a week to do your financial paperwork – sending out invoices, filing receipts, chasing overdue payments, and paying business expenses. Open a business bank account to keep all your business expenditure separate from your personal spending; it makes it a lot less time consuming to work out which expenses were business and which were pleasure when they aren’t all mixed up. Look out for the fee-free business accounts from the likes of Starling Bank.

Monthly income can be hugely variable for freelancers. Don’t be tempted to pay yourself based on whatever profit you have made each month. Aim instead to pay yourself a consistent monthly amount based on your personal living costs, and leave the rest in your business account. In good months, you’ll be building up a healthy buffer of funds. If you know your industry is quiet during particular months or you suddenly lose a major client, this buffer will allow you to pay yourself a consistent salary during those months when income is down.

When you’re self-employed, you pay income tax on your profits – but not every month like when you are employed. Make it a habit to save 20% of your profits each month, preferably into a separate bank account that you can’t easily access. When the time comes to pay your tax bill, you will have the money saved to pay it without having to dip into your own pocket. Don’t be tempted to use that money for anything else; you’re effectively robbing the tax man!

Finally, planning for retirement might not be top of your mind when you’re starting out freelancing. However, set up a pension, pay a small amount regularly each month, increase it when you can, and you will be thankful when you are older.

Remember, cash is a valuable resource and whatever you are spending needs to be generating a return for you. If it isn’t, it needs to go. You might need to think about ditching that cappuccino when you work in Costa every Friday. It all adds up…

Emma Maslin is a certified money coach and founder of award-winning personal finance website The Money Whisperer.

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