Think you can’t afford to go freelance? Six money tips that will help

Leaving the security of a full time job to go freelance can seem scary – but with planning it doesn’t have to be. If you think you can’t afford to go freelance, read these six money tips.

Unlike a full time employee, a freelancer’s income can be very erratic – especially when you’re first starting out. And, unless you are lucky enough to secure regular work from loyal clients from the outset, you can find yourself in a feast or famine scenario.

So it’s important to get your finances in order, and plan as much as you can around your workload. Being able to manage your finances successfully in the early months or years can make a difference between building a lucrative freelance career, and giving up.

Six money tips to help you go freelance

To help give you the confidence to make a break from employment and launch a successful (and rewarding) freelance career, here are six money tips from freelance writer Veronica Pembleton.

1) Consider keeping your day job

One of the biggest decisions aspiring freelancers need to make is when to give up their day job – especially if you need a certain income to cover your outgoings.

It’s important to be realistic and practical when making the decision. While removing a safety net and forcing yourself out of your comfort zone to find work can be a brilliant motivator, if you have no freelance experience, no portfolio or testimonials to secure work, and no potential clients on the horizon, leaping into it full time from day one may not be the wisest idea.

So, if your household does rely on you bringing in an income, it’s a good idea to keep your day job for a while. Once you feel confident that you’ve begun to establish a reputation, have a good idea of how and where to find work, and have some regular clients, then you can make a call on whether to quit the security of your permanent role.

If, on the other hand, your income is just as nice added extra for your household, or you can survive without it at a push, then you may decide to launch into a full time freelance career from day one. Necessity is the mother of invention, and you may find that your career takes off more quickly with a bit of urgency behind you!

2) Get an accountant

Paying for an accountant may seem a luxury if you’re just starting out, but a good accountant can save you time, stress and money in the long run.

They will make sure that you establish your freelance business in the most tax-efficient way, and that you comply with all your financial obligations. They could also suggest ways you can boost your income, such as registering for flat rate VAT if it’s relevant for you.

If you really don’t want to invest in an accountant at this stage, and feel confident that you know how you want to structure your business, you can invest instead in accounting software. There are many different types to choose from, and they’re a brilliant way of keeping your books in order throughout the tax year – simplifying the accounting process for you and saving you the annual expense of an accountant.

3) Work from home

One of the most attractive aspects of freelancing for many mums is the option to work at home. Not only does this mean that you can save on the cost of renting or commuting to an office, but you can combine your work with childcare and the school run if you need to. If your home is your office you can also offset some of your expenses against tax.

If you get lonely working from home full time, you could always investigate coworking spaces near you. Coworking is an increasingly popular option for freelancers and home workers and many spaces allow you to rent desks on an ad hoc basis.

Not only do coworking spaces break the monotony of working from home alone, but they’re a great networking opportunity (both in potentially marketing your own services and finding other freelancers and small businesses to collaborate with) and can even help you to focus better.

Many freelancers book coworking days when they need to concentrate on a chunk of computer-based work, such as admin and bookkeeping. They find that being around other people working (and the fact that they’re paying for the space for that day!) helps them to achieve more.

4) Consider becoming a Ltd company

Many freelancers start out as sole traders but, once their workload increases, make the switch to becoming a Ltd company.

As a Ltd company you’ll pay less personal tax. Instead, you pay corporation tax on your profits, and tax on any dividends you take out of the business. You also take a small salary from the business (usually your tax-free allowance). This also minimises the amount of National Insurance you have to pay, because dividends are taxed separately and are not subject to National Insurance Tax.

Setting up a Ltd company is relatively straightforward, but it does require more complex annual accounting than a basic self-assessment. It may be this is the point where you consider hiring an accountant, or sign up for an accounting package like Crunch. (If you join Crunch they’ll set up your Ltd company for free for you.)

5) Budget well

With no guarantee of a regular income, it’s important that you know how to budget as a freelancer. Many freelancers keep a pot of savings stashed away to cover their basic outgoings for a reasonable time – in case work suddenly dries up.

But for some new freelancers, a pot of savings is a luxury they can’t afford. Instead, you need to get very good at watching the pennies and putting by a little here and there, when you can.

A good way to start is by tracking your income and expenses over a few months (you can start this before you go freelance). From there, work out how much you need to cover your absolute essentials, such as mortgage, utility bills and insurance.

Also calculate how much you need to enjoy a basic lifestyle. For example, you may have some non-negotiables that, while not essential, are important to you, such as gym membership or a TV package subscription. Other expenses you may decide are nice-to-haves.

And finally, you need to remember to budget for tax. Unlike salaried employees, your tax isn’t deducted regularly from your income at source. Instead you need to complete a self assessment or company accounts once a year and pay any tax you owe on your earnings. If you don’t put aside money for tax regularly throughout the year, you’ll get a nasty shock!

Once you know how much you NEED to survive, and how much you want to live on, you can easily see every month if you have any left over, and put it away. It may seem tough in the early months, but the security of knowing that you are covered if you go a few weeks without work (which is quite possible!) makes it worth cutting back on luxuries.

If you’re still working full time and considering freelancing and you can afford it, it’s a good idea to squirrel away three to six month’s worth of essentials and basic outgoings before you launch into freelancing. That way you’l start out ahead and won’t need to budget quite so harshly as you go along.

6) Get your pricing right

Last but very far from least, if you want to be a successful freelancer, you need to charge the right amount. Charge too much and you risk pricing yourself out of work completely. Charge too little and you’ll soon feel resentful at slaving away for so little – you’ll also attract more poor quality clients who don’t value what you do.

So what is the right amount to charge? A good place to start is by finding out what other freelancers of your standard and experience charge. As a rule, freelancers earn more than salaried staff. This is because an employer doesn’t have the extra costs that come with employing someone (tax, providing a workplace and equipment, holiday and sick pay, and paying for your services even when business is quiet).

But don’t assume that just because you appear to have a pay rise as soon as you go freelance you have more spending money. The extra amount you earn per day or project also makes up for the days that you aren’t working, and is needed to cover any holidays or sick days you need or want to take.

If you’re really stuck as to pricing, see if you can find any friendly freelancers or contractors who are happy to give you some guidance. Either contact them directly, see if your friends or business associates have any idea or contacts, or ask in industry forums.

Whatever rates you decide on, as a freelancer you need to get comfortable around the topic of money – something many women struggle with. To help you, we’ve published a few features that can help.

We recommend you take the time to read the advice in these articles – they could save or make you a considerable amount of money over your freelance career:

Get more freelance advice

Planned and implemented well, freelancing can be the perfect career for mums. You get to use your skills, and earn good money on your terms – balancing a rewarding career with raising your family.

It also keeps your skills honed, experience relevant, and maintains (and grows) your network of contacts. So if you do want to resume a full time employed career when your children are older, you can.

If you are considering embarking on a freelance career, you’ll find more helpful advice in these articles:

By Veronica Pembleton