News, insights and advice for contractors
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According to Micro Biz Magazine, there were over 2 million freelancers working in the UK in 2020, with more joining . If you’re thinking about joining this number, we strongly advise you take the time to understand how to stay on top of your finances. To help you with this, we have outlined some of our top tips to keep your finances in check as a freelancer below.
Outline A Budget For Irregular IncomeBudgeting is particularly important if you don’t know what number you’re going to see on your monthly income. You can create a feasible budget by taking the month in which you earned least as a benchmark for income, and taking the month that you spent the most as an indicator of your monthly expenses. This ensures that even when you are earning your lowest, you will never overspend on your budget and be able to ensure financial stability.
Make sure to include business costs you may need to pay in your overall expenses estimate.
Keep Your Personal And Business Finances SeparateOftentimes freelancers will choose to use a merged personal and business account for their finances, as it is more convenient. However, doing so can impact how you manage your money.
The main reason you should keep personal transactions separate from business transactions is that it’s easier to monitor your business’ progress if you only see business transactions. It also makes things easier when it comes to submitting your self-assessment tax return. You can arrange recurring payments from one account to another for costs relating to salaries, etc.
Keep Your ReceiptsA business that’s organized is one that has a filing system for receipts. If your style of organizing receipts is to stuff them all into a large brown envelope, you may find it difficult to keep track of the progress of your business. Taking 10 minutes out of your day to sort through daily receipts will result in a more organized way of accounting for your business finances.
Start An Emergency FundFreelancers should always keep an emergency fund to cover basic expenses when they are in between contracts or there is no other source of income. Having an amount equivalent to three to six months’ worth of bills and expenses can help you manage an irregular income. This contingency will give you the security to choose the jobs that you really want and not be overly concerned by late payments from clients.
Be Mindful Of TaxesTaxes are a fact of life for any freelancer. To manage your taxes, you can set up a calendar so that you keep track of deadlines for processing your taxes and other government requirements. You can also consider keeping an excel sheet to help keep track of your business earnings, and how much you need to pay for in taxes during that tax season. Alternatively, many umbrella companies are able to provide you with help and guidance on when to pay taxes and which taxes apply to you.