5 Managing Money Tips For Freelancers

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Managing money is a sore point for freelancers. As a freelancer, you don’t have anybody telling you about managing money. This can inevitably lead to fear and anxiety about your money. There is just so much you need to consider

  • Emergency funds
  • Debt
  • Retirement
  • Credit scores

This is why I have broken down for you easy to digest managing money tips.

Disclosure: Some of the links in this post are ‘affiliate links’. This means if you click on the link and purchase the item, I will receive an affiliate commission.

Tip #1 How to read your credit report 

managing money tip is to keep an eye on your credit score

Being a freelancer doesn’t mean that you can simply ignore your credit score. You should always keep an eye on the credit score as it can contribute a lot to your quality of life. Maintaining a good credit score can even help you to take your career as a freelancer to the next level and start your own business as an entrepreneur. 

It is a good idea to check your credit score on a daily basis and see if you are doing well with it. That’s where you will need to have a clear understanding of how to read your credit report in your efforts to managing money.

What is a credit report?

A credit report is a comprehensive report that shares all details related to your credit history. Therefore, it is essential that you’re managing money well to keep a good impression for lenders.

It is possible for the potential lenders to take a look at your credit report and understand the risk associated with lending money to you. You can discover lots of information related to your credit accounts in the credit report. They include:

  • Dates where you opened credit accounts.
  • Outstanding balance in each credit account.
  • Payment history
  • Total loan amounts and credit limits
  • Tax liens or bankruptcy-related information
  • Your personal information, such as name, SSN, and address

How do you read a credit report?

You will be able to get a free copy of your credit report every year. If you’re serious about managing money, then you need to start making this a habit to look at your credit report every year.

To gain a copy of your credit report, you should get in touch with one of the three credit reporting agencies. Once you get the credit report, you will get confused with all information available on it.  

3 prominent sections are available in a credit report. While trying to learn how to read your credit report, you will need to have a complete understanding of those three prominent sections.

#1 Your personal information 

You can find all your personal information displayed on the credit report. They include your name, SSN, address, phone number, and date of birth.

#2 Credit history 

You can get a complete overview of your credit history by referring to the credit report. You can discover information related to all the open credit accounts as well as paid credit accounts.

Paid credit accounts including

  • Personal loans
  • Mortgage loans
  • Credit cards
  • Other types of borrowing

Then you can find a quick overview of all the total loan amounts you have. You can also find information related to accounts shared with other people on the credit report.

Late payment-related information is available on the credit report as well. On the other hand, you can discover details about accounts that are sent to collections.

#3 Public records 

In your credit report, you can find details related to the public records. This includes judgments, tax liens, and bankruptcy-related information. These details are obtained from public records. They will last for a duration of 7 to 10 years on the credit report.

Check your credit score with ClearScore.

Does viewing your credit report lower your score?

No, viewing your credit report will not be in a position to lower the overall credit score. Hence, you don’t need to worry too much about it.

While keeping this fact in mind, you can come up with the habit of checking your credit report on a regular basis in an effort to managing money.

What do the numbers mean on a credit report?

The numbers appearing in your credit report can help you to understand what the exact credit score is. This is the most important piece of information you can find in the credit report.

What is a good score on your credit report?

A good credit score is something that you manage in between 670 and 739. If your credit score is between 580 and 669, it will be fair. If the credit score is under 580, you should try to improve it.

Read these 3 strategies to improve your credit score.

Tip #2 Do you need to have an emergency fund as a freelancer? 

managing money tip for freelancers is to have an emergency fund for any unexpected emergencies

As a freelancer, you are responsible for your financial security. This is why you should think about creating an emergency fund for yourself in your efforts to managing money. The emergency fund you create can deliver numerous outstanding benefits to you in the long future.  

Do freelancers need an emergency fund?

Yes, it is a must for every freelancer to have an emergency fund. As a freelancer, you don’t have a steady income. Even if you got a steady income throughout the past few years, you cannot expect that to happen in the future.

According to a recent survey, it was identified that around 45% of the freelancers living out there are not getting payments in a timely manner.

Imagine what would happen if a client walks away from a contract and you don’t get the payments as you expected. In such a situation, you should have enough money by your side to take care of your expenses.

This is where the emergency fund will be able to help you. The emergency fund you have will be able to help you with managing money day-to-day expenses.

For example, you can afford your meals, pay housing rent, and settle all the bills. The emergency fund can help you keep on doing that until you start making money again as a freelancer. 

What is an emergency fund used for?

You will be able to use the emergency fund for numerous purposes. For example, you can use it to buy food and other day-to-day essentials. You will not be able to survive even a day without a meal.

If you have an emergency fund, you can afford your own food without the need to beg friends, family, or go to a food bank. On the other hand, you will be able to pay for medical expenses when you come across an illness.

People who have obtained loans such as a mortgage can stick to timely payments out of the emergency fund.

If you have kids, you will be able to use the emergency fund to support them with continuing their education and activities. Likewise, all the other day to day expenses that you will come across can be covered out of the emergency fund.

How much should you have in an emergency fund?

You will need to have money to survive up to six months in the emergency fund. Do your own calculations and see how much money you need to survive one month. Multiply that by six and maintain an emergency fund.

For example, if you need £2,500 to survive per month, you need to make sure that you are having at least £15,000 in the emergency fund. Don’t even think about moving that money unless you come across an emergency.

Saving money for an emergency fund

Now you have a clear understanding of the importance of maintaining an emergency fund as a freelancer. You should keep this in mind and start managing money and saving money.

This is where you can start saving 45% of your monthly earnings. If this is something that you cannot practically do, you should limit your expenses and try to do that at least you have enough money in the emergency fund.

You will never regret the efforts that you are taking to save money for the emergency fund. That’s because you will be able to end up with securing amazing returns out of it.

In the meantime, you should also set up realistic and specific goals, which can deliver all the support you need with building an emergency fund.

Tip #3 Saving for retirement in the UK 

managing money tip to save for retirement

If you are working as a freelancer in the UK, you should focus on saving money for retirement. That’s because you will not get any other financial support to support your expenses during the retirement period.

Upon retirement, you may not be able to do freelancing as well. Baring this in mind, you need to start managing money for this eventuality.

What is a retirement saving plan?

In a retirement savings plan, you will be allocating a specific amount of money for the retirement fund on a monthly basis. There are many different variations available to consider.

Out of them, the single retirement savings plan are highly in demand. If you keep on paying the premium amounts while sticking to the schedules, you will be able to receive a decent income during the retirement out of your retirement savings plan.

This helps you to refrain from all the financial struggles that you may come across.

Percentage of income to save for retirement

It is never too early to start saving for retirement. If you can start saving for retirement before you reach 30, it is better to allocate around 20% of your monthly income.

Doing this will help you can keep on building a solid retirement fund, which can benefit you in the future. But if you are after the 30s, you should think about saving at least 30% of your income.

Not saving 30% of your income, there is a high possibility for you to face financial difficulties while enjoying retirement. You don’t want to allow that to happen but instead, enjoy your retirement.

Best way to save for retirement

Numerous methods are available for you to follow when you start saving for retirement in the UK. Here are some of the most prominent methods out of them. You can pick one or more of these options and start saving your money for retirement. 

Method #1 Get a personal pension scheme 

One of the straightforward methods available to start saving money for retirement is to obtain a personal pension scheme. These pension schemes are sold by the insurance providers based in the UK, such as

  • Legal & General
  • Friends Life
  • Aviva
  • Standard Life

You can compare the different personal pension schemes offered by them and pick the best one out of them. It is possible for you to save up to £3,600 per calendar year with this option.

Method #2 Start saving money in a different savings account 

If you have more control over your money, you can think about opening up a new savings account to start saving money. Make sure that you transfer a percentage of your income to that savings account on a monthly basis.

Then you can end up with getting a decent fund when you reach your retirement age. If you don’t have the patience to save like that, you can even think about opening up a savings account for your spouse and saving money in it.

How much does the average freelancer save for retirement in the UK?

You will have to spend around £18,000 per year on average during retirement. You should keep this fact in mind and start managing money to save money for retirement.

Better still, if you can have a retirement fund of around £200,000 you can easily manage all expenses that you come across. However, it is better to start saving money as much as possible.

If you feel that you cannot do it with savings, the best option available to consider would be enrolled in a retirement savings plan.

Tip #4 Everything you need to know about consolidating debt 

what you need to know about consolidating debt

If you are under debt and if you are looking for a convenient approach to get rid of it and improve your credit score, debt consolidation is a good option available to consider. When it comes to consolidating debt, you obtain a loan and pay off all the other loans that you have obtained.

Debt including the outstanding balances in your credit cards as well. You will get the debt consolidation loan with a smaller interest rate. Hence, you will get much-needed support by saving a considerable amount of money. 

Dealing with credit card balances is frustrating. If you miss making payments in a timely manner, you will have to pay interest at high-interest rates.

Consolidating debt will be the best option available for you to consider in such a situation. 

Is consolidating debt a good idea?

Yes, consolidating debt is a good idea to consider. However, you need to make sure that you are doing it correctly. If you can do it in the right way, you will be able to receive all the support needed to overcome the heavy debt that you are facing. 

Proceeding with consolidating debt, you will only have to make one payment. Hence, you can refrain from making payments to multiple lenders.

Providing you with more control over the debt repayments. On the other hand, you will be able to reduce the total amount of money that you are spending on a monthly basis for the debt payments. That’s because you can obtain the debt consolidation loan at a lower interest rate.

Does consolidating debt hurt your credit?

It is true that consolidating debt will be able to help you with managing all the debt payments. However, you should also keep in mind that consolidating debt can lead your overall credit score to a temporary dip. 

There are two different approaches available for you to consider at the time of consolidating debt. The most popular option out of them is to obtain a debt consolidation loan. Or else, you can get a balance transfer card.

No matter what method you pick out of these, there will be a hard inquiry on your credit. That’s the main reason why you will have to experience a temporary dip on your credit.

Smartest way of consolidating debt

As mentioned earlier, there are two different approaches available to consolidate debt. Each method is associated with pros and cons. Hence, you should analyze them carefully and pick the best method out of them to proceed.

If you consolidate debt with a debt consolidation loan, you can proceed with the idea, even if you have a low credit score. It will provide you with the chance to enhance the credit mix, especially if you had only credit cards in the past.

Provided with the chance to combine multiple payment methods into a single payment. However, you need to make sure that you are paying the monthly installment of your debt consolidation loan in a timely manner. Otherwise, it can lead you to more struggles.

When you consolidate debt with a balance transfer card, you can receive a lower interest rate. You can receive flexible payments. There is no pre-payment penalty to worry about.

Tip #5 Understanding business expenses and taxes as a freelancer in the UK 

understanding those tax as a freelancer

Freelancing comes with a variety of benefits. This is the main reason why lots of people in the UK tend to go ahead with freelancing. However, it can lead you towards several complications during the tax time. 

All the people who work as freelancers will be considered self-employed by the Internal Revenue Service. Hence, it is important for you to go ahead and file taxes. You should do that as an owner of a business. However, you still have the ability to experience certain tax deductions as you are working as a freelancer. It is important to have a clear understanding of them before you file for taxes in the UK.

Business expenses you can write off as a freelancer in the UK?

There are several business expenses that you can write off as a freelancer in the UK. Here are some of the most prominent options out of them.

  • Travel expenses 

If you are traveling to meet clients or even to attend events such as trade shows, you will be able to write off those expenses. Travel business expenses include the cost of accommodation and transportation. You can also receive a 50% deduction on all the meal expenses.

  • Home office expenses 

Most of the freelancers are working from their homes. You will therefore be able to write off a percentage of your home rent or mortgage. However, you should clearly prove that there is a designated area in your home, which you can use for working as a freelancer.

  • Utility expenses 

If you are a freelancer who has an office out of your home, you will be able to write off all the payments on utilities at the time of filing for taxes. This includes the cost of electricity and gas. 

  • Professional development

As a freelancer, it is important to focus on your professional development. It can help you to overcome the competition that you face. This is where you can take numerous courses that are available on professional development. You can take those courses and write off the amount of money you spend when filing for taxes. You can also write off the membership fees and dues for professional organizations.

  • Marketing and advertising expenses 

While working as a freelancer, you will have to take care of your own marketing campaigns. All the marketing and advertising expenses can be written off while you are paying taxes. For example, you can write off the cost of managing a website, the cost of printing business cards, and the cost of printing flyers to promote your business.

  • Cost  of software

Most of the freelancers in today’s world tend to spend their time in front of a computer screen throughout the day. While doing that, you must also be using a variety of software applications. You will be able to write off the cost of such software applications when filing for taxes.

How much tax do freelancers pay in the UK?

As a freelancer, you will have to pay an income tax of 20% of all the earnings that are above the personal allowance. However, it should be under the upper limit of the basic rate. As per the 2020/21 tax year, the upper limit is £37,500. If you have any doubts, it is a good idea to get in touch with a tax consultant and get them clarified. Then you can proceed with filing for taxes without facing any struggles or confusion.

In A Nutshell,

As a freelancer, it is important to manage your money. As the pandemic of 2020 has shown all of us especially freelancers, there is no certainty. But to help us keep control of our finances is by using software that not only does your invoicing, but also does your taxes and allows you to see your forecasted income. Get a 3-month free trial clicking here and start using the accounting software (just in time for the tax return).

30 thoughts on “5 Managing Money Tips For Freelancers

  1. It’s the money/finance aspect of freelance that scares me about it- just having to control and manage your money yourself is terrifying to me! But these are some great tips, and I’ll have to do some more research. Thanks for sharing 🙂

  2. Since going freelance Ive made an emergency fund just incase! Especially because of the pandemic. These are some really great tips! X

  3. Thank you for reading the post Kayleigh. Due to the pandemic and we don’t know how long it will last for and the repercussionsof it all on the economy we need to manage our money better

  4. WOW this post is absolutely jam packed with amazingly helpful tips for us freelancers. Where have you been all my life!? I am 10000% sharing this with my followers!
    Rosie

  5. Alison this is a must read article how to financially strengthen self. Your tips and pinpointed explanation not only helpful for freelancers it applies to everyone.
    You have given an extraordinary explanation how credit scoring system works.
    Amazing stuff 😍😍

  6. Thank you for reading the post Suresh. As a freelancer, I come from the viewpoint of how a freelancer can manage their money. I am glad if it can also help other people

  7. Really important information in this post. It is important for everyone to manage their money but it can be tricky when you do not have a steady paycheck. Thanks for the info.

  8. Thank you for reading the post. Yes it can be tricky when living from paycheck to paycheck but you can still learn how to manage your money so you don’t end up in trouble with creditors.

  9. I swear by my emergency fund. It’s something I never knew I needed until a few years back, and now it’s my best friend. It helps me feel much more secure – even on the lower income months. Freelance life can be tough, but it’s worth it, especially if you know how to handle your finances!

  10. Great suggestions – Honestly, this year has highlighted the importance of having an emergency fund! As businesses were hit with huge financial losses in light of the current global situation, many freelancers found that it was harder to score contracts – fewer contracts = less income. No one could have predicted a global pandemic… It just goes to show that you never know what could be waiting around the corner.

  11. Although I think that everyone should establish emergency funds, I agree that freelancers need it most especially, as what you’ve said that a freelancer doesn’t really have a stable source of income. Problems could arise, and it’s better if you are saving for an emergency fund. This is adulting 101, which I don’t know anything about 😂 but this made me realize sooner I’ll have to do this for myself. Thanks so much for this, Alison! Hihi xo

  12. Thank you for reading the post. It is a common problem I have come across as a freelancer, that need for emergency money especially as there is little certainty as to income.

  13. Thank you for reading the post. The global pandemic has proved that you have no certainty as there are a lot of external factors out of your control. I just found it unfortunate I needed to use this pandemic to show the importance of having an emergency fund.

  14. Thank you for reading the post. Emergency funds are vital for those who do not have a stable income. Freelancers can unfortunately fall into the cycle of famine or feast.

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