When you’re a freelancer making an irregular income, it can feel impossible to properly budget. We have worked with the experts at Dolan Accountancy to share some of their tips to help manage your uneven income as a freelancer
A recent study revealed 71% of Gen Z are shifting from the traditional 9-5 employment in favour of flexible hours and the opportunity to be their own boss.
Looking at the numerous benefits of self-employment, it’s easy to see why so many people choose to freelance, but it’s important to be aware that with this lifestyle there may be some months where you earn less than others. For those choosing the freelance route, dealing with financials can be overwhelming when starting out as there will be times when income is less than others.
Therefore, it’s worth having the tools and knowledge so you know how to manage your income.
What is a freelancer?
A freelancer, also known as a contractor, works for themselves, finding their own contracts regularly.
When it comes to contracting, there are a few different routes to choose from, each one with its own pros and cons.
There’s the limited company route where you become the director of your own business – this is the most tax-efficient way of contracting, but it also comes with the most responsibility, especially if you hire your own staff.
A sole trader runs their business, but on their own, and they won’t have the same benefits or responsibilities as a limited company contractor.
There’s also the umbrella company route, which is sometimes the most appealing for those who have just left a permanent job. This is because it isn’t as much of a leap into the contracting world due to the contractor essentially being employed by their umbrella, which also means not having to deal with the admin side of self-employment.
Benefits of freelancing
Freelancers exist in all industries and sectors with many choosing the self-employed route because of the many benefits:
Freedom and flexibility:
With more and more people starting to prioritise a better work/life balance, freelancing is a great option because there’s so much more freedom and flexibility compared to being an employee – such as being able to choose your clients and pick the hours and days you want to work.
A contractor’s rates of pay are often higher compared to their permanent counterparts, and the more experience and skills you have, the more you can potentially charge. Another financial benefit is the fact you are able to claim back on expenses made for the running of your business, which helps to reduce your tax bill at the end of each year.
Skills and experience :
As a contractor, you’ll naturally take on a wider variety of work and collaborate with more people compared to an employee, meaning it’s likely you’ll gain a great deal of invaluable experience and skills along the way.
Are there any downsides to freelancing?
There are of course some downsides to freelancing – there’s the fact that there’s a lot of admin involved, not being entitled to holiday and sick pay and ensuring you have the motivation and skills to regularly find your own work.
As you can imagine, the amount of work you’ll have on at one time will fluctuate – you might have a contract that doesn’t pay as much as you’re used to or there might not be as many opportunities one month; on the other hand, you could find yourself taking on a long-term project worth a lot of money meaning you won’t need to worry about finding a new contract for a little while.
So, you can see how it’s not unusual that income can become uneven when you are self-employed, which is why it’s so important to be prepared for these times.
How can you manage your income as a freelancer?
There are many things you can do to ensure you can get by during slower work periods, but ultimately it takes being organised and making sure you plan ahead financially.
Here are a few handy tips to achieve this:
- Know your tax and budget for it
As a contractor, you know that each year you’ll need to file a self-assessment tax return and pay any money owed by the 31st of January.
Unlike a permanent worker who will have this all done for them by their employer via PAYE, it’s your responsibility to have that money by the deadline date, and it can be really easy to forget this when you have outgoings to pay for each month.
A great tip is to put aside a percentage each time you’re paid and put it in a different account knowing that that money is for tax only.
- Put aside emergency funds
It’s most definitely worth putting aside some of your salary to pop into emergency funds for when you come across those quieter months.
It’s usually recommended to have about three months of living expenses put away in order to cover your basic needs and bills if need be.
- Hire an accountant
An accountant might just seem like another expense, but it really is incredibly useful to have an expert to help you out with the admin side of things, such as filing your tax return, so that you can use that time to work and earn money.
Not only that, but an accountant can help you to save money in the long term, using their knowledge to advise you on money-saving techniques you might not have otherwise been aware of.
The cost of hiring an accountant can also be claimed as an expense on your tax return.
- Look at a contractor calculator
As mentioned previously, there are a few different methods of contracting, and by using a contractor calculator you can get an idea of how much you can expect to take home.
It will take a number of factors into consideration, such as certain fees and taxes.
About Dolan Accountancy:
With years of experience, Dolan Accountancy provides just about everything you need in an accountancy company, all wrapped up in one low-fixed monthly fee.
Award-winning, Dolan Accountancy offers a combination of experience and great service and is both fully FCSA accredited and an APSCo Trusted Partner.