Warning: Late repayments can cause you serious money problems. For help, go to moneyadviceservice.org.uk

How to Manage Your Freelance Income

Divider

Freelance work is rewarding, but it can also be incredibly stressful. Can you guess what the number one thing is that stresses freelancers out? It’s not deadlines, and it’s not interacting with clients – it’s cash flow. Cash flow is incredibly important to a freelancer, and when you can’t guarantee that payments will come in when you expect them to, you could find yourself in trouble. Here are some tips that can help.

1. Create an Emergency Fund

It is vital to have a backup fund available that you can dip into when payments are late coming in, and you have bills to pay. Work out how much your expenses are each month, and try to set aside at least double that – more if possible. In terms of budget, it’s a good idea to create two kinds – a needs only budget, and an optional budget. We’ve outlined these in more detail below:

Needs Only Budget

A needs only budget should be a list of things that you absolutely have to pay each month. This should include things like the rent, your energy bills, basic food items, and any transportation you need to get to and from work. Knowing your needs only budget is a good idea because if you fall on really tough times, you will have an idea of how much money you need to earn to get you through a truly basic month. You can also work out whether a short term loan will help you, until you get paid.

An Optional Budget

An optional budget, also called a lifestyle budget, should include everything in your needs only budget, in addition to the luxuries that you pay for each month. This includes entertainment options, luxury food and takeaways, and nights out. The reason why experts often recommend you create an optional budget is so that you don’t fail when it comes to saving.

2. Open a Separate Business Account

Whilst it’s fine to use the same bank account for your personal life as well as your business, it’s not recommended. Not to mention the fact that having a separate account makes your accounting a lot easier, and it will also help you to understand how much money you have available. Use your business account to pay your salary and to cover business expenses, and use your personal account for everything else.

man working on a laptop

3. Project Your Monthly Income

When you freelance, you will have some times that aren’t as busy as others, so it’s important to try and project your monthly income. You could either take this as an average figure, or budget for the lowest income figure you’ve had to date. Don’t be afraid to seek out short term loans if you need them either, to help cover your expenses.

Apply Now!