Managing Your Finances as a Freelancer

People are often curious about your finances when you’re a freelancer. If they don’t ask you outright how you’re getting by, you’ll notice that it’s an undertone during certain conversations. Now obviously, some of these people are probably just being nosey and you don’t necessarily have to indulge that, but there’s sometimes a little more to it. We’re so conditioned to believe that we need the security of a salaried job that a lot of people are genuinely interested in imagining what their life might look without that.

Now, I don’t want to sugarcoat this or present some idealised image of freelancing. When you’re looking at making the switch to self-employment or deciding if you want to start your own business, you need to weigh up the pros of cons, and one of the cons is definitely that you won’t have the financial stability of a regular 9 to 5. At least not to begin with. That doesn’t necessarily have to be a dealbreaker though, and today I want to talk about some of the things I’ve found helpful when it comes to managing your finances as freelancer.

Have an Emergency Fund

I mean I really can’t stress this one enough and I think that anybody who wasn’t already sold on the idea has probably re-evaluated in the wake of COVID-19. Even if you’re getting steady work as a freelancer, your income will likely fluctuate, so it’s best to put money aside when things are going well, so you don’t have to panic during quieter periods. 

As a freelancer, you don’t have the same legal protections as an employee. This means no sick pay, no holiday pay, no redundancy pay-outs, etc. As the self-employed workforce grows, governments are getting slightly better at acknowledging the existence of freelancers during times of crisis (here in the UK, there were various relief schemes you could sign up to during the pandemic) but you’re still often on your own. The only way that freelancing is going to be sustainable for you (in bad times as well as the good) is if you put aside money for emergencies. Most financial experts recommend you save up enough to cover at least three months of expenses. It’s worth doing this before you take the plunge and quit your day job. It’ll spare you a lot of anxiety.

Start a Pension

Now I’ll admit, I struggled with this one for a long time. When you’re in your twenties, retirement seems like a strange, abstract concept. I would just roll my eyes when anybody brought it up and think: “I don’t have to worry about that yet”. Finally, after reading a bunch of articles about the importance of pension planning, I decided to act.

Most employers are legally obligated to give you access to some kind of pension scheme, but you don’t have that when you’re self-employed, so it’s up to you to sort it out. There are plenty of schemes designed specifically for self-employed people and it may also be possible to continue paying into a fund that was started by an old employer.

In all honesty, pension planning is really not as boring and time-consuming as I’d imagined it would be. Once you’ve got something in place, you can set up a direct debit and then you barely have to think about it. It’s just there in the background steadily accumulating. Your future self will thank you.

Keep Your Outgoings Low

This is particularly applicable when you’re first starting out. Managing your finances in your early days as a freelancer is going to be a lot easier if you don’t have really high monthly outgoings. It’s probably not the moment to move into an apartment with a really high rent or take out a mortgage. Also, if you have a big life event coming up, like a wedding or a new baby, it might not be the best time to take the plunge into the world of freelancing.

Obviously, you can’t plan everything in life, but in terms of what’s ideal, your first years as a freelancer will be much less stressful if you don’t have huge bills to cover. Try to avoid subscriptions and putting things on finance, and cut back where you can. It’s worth making short-term sacrifices, if you’re really sold on the benefits of freelancing.

Invest in Your Business (in Moderation)

Investing in yourself as a business is really important, because it’s the only way you’re ever going to expand your operation. You need to set aside a portion of your earnings so that you can purchase the relevant tools and marketing materials that will make you look like a real professional.

Having said that, I’ve found that it’s better to not get too carried away in the beginning. In the translation industry for example, it’s tempting to think you need to purchase licenses for every single CAT tool (computer assisted translation software) on the market, but this can get incredibly expensive incredibly fast. Similarly, there are various associations that charge for membership and certification. Rather than throwing your money around like there’s no tomorrow, I think it’s better to work out what’s absolutely essential to get things off the ground and then gradually build up from there. Over time, you’ll develop a better sense of which investments are worth it and which aren’t. Always bear in mind that the more you’re investing in your business, the more you need to earn to make a decent profit. It’s similar to having high personal outgoings in the sense that you can put yourself under a lot of unnecessary strain.

Raise Your Prices

This might seem counterintuitive, but if you’re struggling to make ends meet as a freelancer, then you might need to look at raising your prices. It’s easy to get so caught up in trying to be competitive that you end up under-selling yourself. In the short-term you’ll feel relieved to always have work, but it isn’t sustainable in the long run. 

Make sure that your rates go up as you acquire more experience. The key to not scaring away customers is your branding. The people you’re working with need to understand the value you’re bringing to the table. Clients will pay higher prices for a higher quality product, so make sure to distinguish yourself from cheaper, sloppier alternatives. It’s worth investing money – and certainly time – in the putting together the kinds of high-end marketing materials that will really make you look the part. That could be a website, business cards or even a social media account.

The important thing is that you identify your unique selling point and then convey this to potential clients. Emphasising that you provide a high-quality service allows you to ask for more money. It’s as simple as that.

So, in conclusion, freelancing definitely comes with its own specific set of financial considerations, but they aren’t impossible to manage. In some ways, I’ve found it quite empowering to take ownership of things that otherwise wouldn’t have been my responsibility. It’s made me much more conscious of what I want and how I’m managing my money. Ultimately, you’re expanding your skillset and that’s never a bad thing.