As the global economy evolves, one of the most noticeable changes is the increase in the number of people choosing to work freelance. Going it alone can have many benefits, from increased freedom to the ability to choose your preferred working pattern.
But while being able to get out of the office and set your own agenda can be an attractive option, being a freelancer has its downsides, one of the most significant of which is worry over money. While many employed workers also have money worries, for freelancers, the stress is increased because everything depends on them. The lack of security can be frightening, particularly when you start out as a freelancer, but if you take the right steps, you can deal effectively with money worries. Here are seven of the top money problems and how to tackle them.
Dealing with tax
Moving from employment to self-employment can be a huge culture shock and handling your own tax responsibilities is one of the hardest aspects to adjust to. Freelancers tend to come across two major tax-related problems. First, as Self Assessment comes round only once a year, it can be easy to forget about tax the rest of the time, until you’re hit with a big bill at the end of the financial year. The other problem is the sheer complexity of the tax system which can leave freelancers bewildered, no matter how often they’ve gone through it! The first problem can be solved by making it a habit to put aside a proportion of your income every month towards your end of year tax bill. As for the complexity of the tax system, freelancers can turn to services that offer assistance with a range of self-employment issues from how much tax to pay to help with IR35.
Employees rarely have to consider the cost of overheads, such as paying bills, utilities or rent for the space where they are working, but this is an important aspect of freelance life. Before you start your freelance career, it’s a good idea to estimate how much money you are likely to spend on any overheads and start putting aside a small portion of your income to cover it.
Keeping track of your finances
For busy IT freelancers, knee-deep in software, coding or cables, it is easy to lose track of the financial details of your business. Not knowing how well your business is doing in terms of profit or loss or being unaware of the major financial indicators affecting your freelance viability can not only be stressful, it can lead to serious problems. One solution is to hire an accountant, or to look into accounting software that can do the hard work for you.
Losing current clients
The initial phase of working as a freelancer is all about building up as big a client base as possible. But what happens if you start to lose existing clients? Some freelancers can find this particularly stressful as they can see their valuable income dwindling. The solution is to balance pragmatism with attentiveness. Make sure that you don’t take existing clients for granted and keep the lines of communication open, but also be prepared to accept that there will always be a turnover of clients and don’t let it worry you.
Attracting new business
Being a freelancer can sometimes feel like a plate-spinning act. You have so many different aspects of your business to attend to and you can’t afford to neglect any of them. But in terms of financial success, one of the most important factors is attracting new business. If you want to keep a steady income going, it is vital to make consistent efforts to attract new clients. For IT contractors or freelance writers this can mean regular ‘touching base’ emails with old and potential clients, or daily checks of sites and contacts offering work.
If there is one thing that causes more stress for freelancers than any other it is late payments. In fact, this is a chronic problem throughout most economies and it can be immensely frustrating, not to mention incredibly stressful to deal with. The secret of handling late payments, particularly for young or novice freelancers, is not to allow yourself to be fobbed off. Be polite, but firm, make sure you know your rights and the law in this area, and above all, make it clear that you will persist in chasing the payment until it is dealt with.
Working as a freelancer can be immensely rewarding. The freedom and flexibility it gives you can be invaluable, and by taking steps to address the potential pitfalls listed above, you can reduce the risk of money worries spoiling your freelance dream.