How to successfully manage your finances as a freelancer


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Managing income as a freelancer is becoming relevant to more people as the gig economy is now estimated to be employing more than 7% of the Australian workforce.

Some years ago I was a freelancer working from home and writing for a living. I soon became familiar with issues that freelancers face: inconsistent cash-flow, paying yourself first and juggling multiple tasks at various rates.

Freelance work isn't always planned and nor is it always seen as a long-term proposition. There is often little planning on how to set yourself up, no long-term plans for your work and often there's short-term thinking when it comes to managing your business.

managing your finances as a freelancer

However, it's important to treat freelancing as you would other forms of business and work.

In the beginning I juggled all my commissions in my head: what was due when, who had been invoiced and who had paid - until my mother taught me some basic bookkeeping.

I hadn't noticed that I was consistently stressed until I started my own administration and realised that my mind eased once I had to transfer all the details from my head onto paper.

Bloom Advisory Group financial adviser Jennifer Porter says people often become freelancers on a whim going from employer to self- employed without a plan.

"It can happen through an unexpected unemployment or redundancy situation or simply because they think that they may be better off working for themselves. They don't plan well enough or consider their strengths or weaknesses," she says.

It is important to find ways to remain accountable to yourself, Porter says.

"Often the additional freedom is a great way to let bad habits sneak in, so have a plan for your week or month and stick to it.  No excuses. Keeping to a regular routine helps and having a dedicated work place in your home works too."

Nine things I wish I'd known before I started freelancing

  1. Make sure you have money set aside to tide you over the lean months, when none of your commissioners have paid you. This happens regularly and often the larger companies are the slowest payers.
  2. Don't forget to keep up to date with your own financial plans - and make sure that you are paying yourself first for savings and achieving your financial goals.
  3. Pay at least 9.5% into your super. As a freelancer, this is totally up to you to pay and while it may not seem a big deal to miss a year if your cashflow is tight, you will miss this money as you near retirement.  When deciding on your work rates, make sure earning enough to cover super is a consideration.
  4. General insurance - consider where you work. Does your home insurance cover you or people coming into your property?
  5. Personal insurance - do you have cover if you cannot work due to sickness or an accident? There is no option of sick leave when you work for yourself.
  6. Give your clients what they are paying for. Sometimes it's tempting to give a bit more love to those more interesting commissions but when they are paying a lot less than your big commissions you should question whether you are using your resources (time) wisely. There are occasions where you need to call time on something because it's not financially worth your while. You are running a business and you need to make sure you are conducting it in the most efficient way possible.
  7. Your business is typically divided into three: winning business, doing the work and charging for it. You can't afford to ignore any of these sections of your business as neglecting them will compromise your whole enterprise. You may be doing a great job but if you don't have the next one lined up you will struggle. If you don't keep on top of your invoicing and payments you will also fail.  However, if you work at all of them and find that you are exceptionally good at winning the business but not so effective at producing it in a timely and efficient manner, you might think about outsourcing some of the work and partnering with another provider to complement each other's skills. 
  8. Remember you're a freelancer but you are working in a business. Set up your administration, your software, your environment and your branding appropriately. Don't combine your personal money with your work money, don't do favours you can't afford. You haven't got time to do work for nothing in your own business. If someone values what you do they'll pay you. Also, don't undercharge. Do your market research and know what's fair.
  9. Don't forget the tax man. If you are earning more than $75,000 (or think you will reach the threshold) you need to register for GST which you may then pay quarterly or monthly. Remembering to keep this amount separate is important to cash-flow. You should also make an estimate of the tax bracket you will be in and put aside say 30% into a special tax holding account to keep it separate from spending money and be ready to pay your annual tax bill. If you are earning $75,000 your tax bill will be around $17,000, which if it hasn't been kept aside will be quite an imposition come tax time. Also, remember to keep receipts for any stationery and other work related expenses that are tax deductible.  

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Julia Newbould was editor-at-large and later managing editor of Money from November 2019 to February 2022. She was previously editor of Financial Planning and Super Review magazines; managing editor at InvestorInfo and at Morningstar Australia. Julia co-authored The Joy of Money, a book on women and personal finance. She holds a Bachelor of Economics from the University of Sydney where she serves on the alumni council.

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