As a freelancer, your destiny is in your own hands, and this is one of the main benefits to becoming a freelancer in the first place.
You get to be your own boss, set your own hours and payment terms, as well as decide who you want to work with.
This level of freedom is great, but it also brings money worries that those in traditional employment rarely face.
Don’t despair, though, as lying awake over a late invoice or tax bill doesn’t automatically mean you’re bad with money.
In fact, the way freelance income works makes this kind of stress very common, and it’s almost impossible to avoid if you choose to go it alone.
So, where does that leave you?
In this article, we’ll break down exactly why freelance income is so stress-inducing, and offer some simple steps to feel steadier about your finances.
Why freelancing can make money feel stressful
By its very nature, freelance income is irregular, which also means it’s unpredictable.
A strong month can immediately be followed by a quiet one (and vice versa), so planning ahead – or even just keeping track of everything – can be tricky.
Not only does this impact your ability to budget properly, but it can also encourage overworking, as a strong month can feel temporary.
Unlike those in traditional employment, whose income is often steadier, freelancers have to hope they make enough each month to pay all their bills – which of course remain fixed for freelancers and non-freelancers alike!
There are also late payments to contend with, which can further affect your cash flow, and there’s no employer safety net to fall back on (things like Statutory Sick Pay, paid holiday time, or workplace pension auto-enrolment).
In the absence of PAYE (Pay As You Earn), you’ll also have to set money aside for Income Tax and National Insurance, and it’ll then be your responsibility to file your own Self Assessment tax return each year.
All in all, it’s a lot to deal with all by yourself, but that’s what you sign up for by choosing the life of a freelancer.
Signs money worries are affecting you
So, if irregular income is considered “normal” for freelancers, how are you supposed to know when it’s becoming a real problem for you?
While a little stress is common (and even expected), there is of course a line.
Ask yourself whether your money worries are starting to have a direct impact on the choices you make in your business.
For example, are you undercharging, or taking on jobs you normally wouldn’t?
These are possible signs you may be acting out of fear instead of reason or logic – understandable, but obviously not where you want to be.
Of course, your concerns may also be affecting your personal life, and so consider whether you’re finding it hard to switch off and think about things outside of work.
Practical ways to ease the pressure
Thankfully, there are some strategies to help you feel more in control.
Let’s take a look.
Know where you stand
Good bookkeeping allows you to spot financial trends you might otherwise miss – helping you save for the slower seasons and prepare for the busy ones.
You’ll get to see the numbers in real time, giving you a clear picture of your business’s financial health. You’ll also see which projects are actually profitable (and which aren’t), because you can track income against expenses.
Keeping accurate and up-to-date records also makes it easier to get a handle on your average income and spending, which is especially useful when earnings fluctuate from month to month.
This information can then be used to create a rough plan for paying your Income Tax and National Insurance, and so there should be less stress around the time your Self Assessment is due.
What’s more, recording costs as you go means there’s less chance of allowable expenses being forgotten about or simply overlooked.
Pay yourself a regular amount
While you may not receive a regular salary as a freelancer, you can still choose to pay yourself a set amount every month to keep things steady.
This can be more difficult, though, especially if you’re a sole trader that uses their personal bank account for both business and day-to-day spending.
You could consider switching to a business bank account, or giving yourself a monthly allowance and adding the rest to a savings account for your taxes.
Alternatively, you can leave any surplus in your account during high-earning months to cover slower periods.
Build a buffer for quiet months
When it comes to the quieter months, it’s generally a good idea to have some kind of cushion in place that covers essential costs – just in case you fall behind or have to endure a particularly slow period.
This buffer should also cover time off, both planned and unplanned.
Just because you don’t receive Statutory Sick Pay doesn’t mean you won’t ever get sick, and so you need to be prepared for that scenario.
More generally, though, even just a small buffer reduces the pressure to say yes to everything, while also enabling you to have a better work/life balance.
Do I need an accountant?
If you really want to regain control of your finances as a freelancer, speaking to an accountant is one of the best things you can do.
An expert accountant can analyse your records and help you understand what you owe, what expenses you may be able to claim back, and how much to put aside for tax.
They may even be able to handle your accounts for you, leaving time for more paid client work and giving you the peace of mind you’re after.
Head over to our information hub for more guides, news and advice on navigating life as a professional freelancer, from finance to tech and more.
