Eight hidden freelancing costs you need to factor in

Thinking about going freelance, and working out what you need to earn? Here are eight hidden freelancing costs you need to factor in.

Setting out alone and becoming a freelancer has become increasingly popular over the last couple of decades. Once it was a decision fraught with negatives and too many hurdles – where will you find work? How will you get enough customers? What happens if no one pays me?

Improvement in technology and the rise of freelance platforms that essentially act as effective online marketplaces have all made a huge difference. 

If you are good at what you do and provide a great service, it’s relatively easy to set up and build your customer base. It’s also something you can start part-time while you still have the security of a ‘normal’ job.

While it’s cheaper than ever to set up as a freelancer, there are some costs that you may not be 100% aware of. Here we take a look at those things that all add to your operating bill and can make a difference to your bottom line. 

1) Equipment and where you work

Most freelancers will work from home. If you are planning to have a dedicated office, it is going to cost you extra in rent and maintenance fees. 

While working from home is cheaper, it’s not exactly cost-free. 

While your home was unheated during the day when working for someone else, now you have to start using those utilities during daylight hours. There’s the power used for running things like laptops and other equipment associated with your freelancing activity. It all adds up.

You’ll also need to buy equipment for your business. If all your work is done on a computer and you don’t need anything else, that extra cost will be minimal. You may want to create a dedicated home office, however, and that requires at least a little investment. 

Equipment is not all physical. There may be a number of online or software solutions you need, including signing up to freelancing platforms and paying their rates. 

You’ll need to create a website for your business– fortunately, this is really cheap nowadays and you don’t need to depend on an expensive website designer to get you online. 

2) Holiday and sick pay

It was great when you were working for someone. You got holiday and sick pay so you never had to worry. Unfortunately, the same is not true once you become a freelance. If you are sick and can’t work, you don’t get paid. 

Holidays are a double whammy. Not only do you have to find the money to take the time off, you don’t earn while you’re sunning yourself in the Algarve. 

This is something that is worth planning for the moment you start freelancing. Begin putting money away into an emergency fund that can protect you when you are not working and provide those important holiday breaks.

If you also have personal finance issues that are likely to impact on your bank balance, it’s also essential to get these under control so they don’t eat up your revenue. 

3) Longer working hours

As a freelancer, you are probably going to be working longer hours, at least in the beginning. Getting started and growing a reputation are two of the more immediate challenges you will face. 

In normal work, you would have been paid a set salary and kept your work hours under control. Now, unless you are very lucky, you’ll be working longer for less while you set up and put in the effort to succeed. 

4) Tax and National Insurance 

You’ll be responsible for doing your own tax return and paying both tax and National Insurance. For first time freelancers, this can appear quite daunting. 

You need to put in your tax return through the HMRC self-assessment portal. The good news is it’s pretty easy to use. Tax rates are the same as for people working for someone and National Insurance is calculated when you do your assessment but is slightly more complicated. 

If you earn over £85,000 then you will also need to start registering your service for VAT and paying that.

You will certainly need to keep track of is your expenditure. You can reduce your tax bill if you have outgoings that are used for running your business. For a freelancer, this includes buying equipment, travelling to meet clients, payments for online services and the like. 

Another cost that is likely to impact freelancers in the future follows the Government’s efforts to make tax digital. This means you will need to use some sort of accounting software that is compatible with their systems and that will come at a cost. 

5) Keeping up your pension

Now that you are a freelancer and not working for anyone else, you will need to sort outwhat to do with your pension. This requires you making a monthly payment to a private provider and is something you will have to budget for. 

6) Insurance costs

This depends on what business you are in. If you are a solicitor, accountant or architect, for example, you will need liability insurance to cover yourself if anything goes wrong. Your car insurance premium may also be increased if you are using it for work. 

7) Travel costs

Many people choose to work exclusively from home and never even meet their clients in person except online. If your business involves getting out to see clients, however, you will need to factor in travel costs such as petrol for the car and train tickets. 

8) Productivity and procrastination

This may sound a little odd to add to a list of hidden costs when going freelance. However, it’s the biggest challenge that those going self-employed for the first time face. Poor productivity and procrastination can simply cost you money. 

It’s easy to get into the habit of doing things later or putting a job off till tomorrow. Unfortunately, you can find yourself playing catchup far too often and that may even lead you to losing jobs because you were unable to meet deadlines. 

Have a plan for getting work done and stick to it. The more you get into this habit, the less a problem procrastination will be.

Create a budgeting plan

It can be tempting to rush into your freelance lifestyle with reckless abandon and all the positivity you possess. An important habit to get into, however, is reviewing your budget and understanding where you need to put money aside and where you can find cost savings. 

The good news is that the more you work as a freelancer, the more this will become second nature, helping to keep your business on firm and profitable ground. 

John Talbot, known in the online personal finance community as “Money Nerd” helps people get out of debt with his writings on Money Nerd.

Photo by Christina @ wocintechch