A freelancer’s guide to managing money

A freelancers guide to managing money

Figures show that there are around 5 million self-employed people in Britain (15% of the labour force), having increased from 3.3 million in 2001.1 Freelancers make up around 41% of all self-employed workers, with the professional services sector leading the way in growth.2

Considering the uncertainty around income and ongoing expenses, managing money is a challenge for freelancers. If you are giving up employment for something more flexible, then you need to get your financial house in order.

Cash is king

When you aren’t paid on time, you need back-up cash. Then, if a client pays you late or life throws you the unexpected, there’s a financial cushion to take away the stress. The more your income fluctuates and the higher your expenses, the more you need. We normally recommend a minimum of three to six months’ worth of living costs for an employed client – but for the financial ups and downs of freelancing, we’d suggest saving a little more.

Try to separate your personal and business money to keep administration straightforward. Remember that high street banks don’t offer much interest on business cash if it sits there for a while.

Income is vital

Pay close attention to where your money goes, and budget and plan to avoid money worries. Assess what you need to earn to cover your outgoings, including tax and savings for your future. This will be more than you think when allowing for holidays and benefits that you would have as an employee. You can then work out what you need and set a ‘day rate’.

As a freelancer, if you don’t work, you don’t get paid. With no sick pay, the impact on finances could be catastrophic in the long run, particularly if you have large commitments and a family to support. To give you a critical safety net, you can insure your risk of not being able to work. This doesn’t have to be expensive.

Don’t forget tax

Tax needs to be planned, so you should set aside regular sums for tax and national insurance contributions. An online tax account helps you manage your tax affairs, ensuring you’ve got the money when it’s needed.

You also need to keep records of expenses, and there are many apps that can help you with administration. Keep on top of what you owe and do away with that box of paperwork.

Then there’s your pension

You won’t receive workplace contributions, and saving money into a pension is tax efficient.  If you’re self-employed and a high-rate tax payer, this could mean that for every £100 you contribute, the net cost is only £59 (based on current reliefs in Scotland).

According to the investment firm Fidelity, only one in three self-employed millenniums have a pension.3 But the earlier you start saving, the better. Younger freelancers can afford risk, with time on their side to ride out volatility. Pensions are now so flexible; if you choose to go back to employment, you can alter plans and you’re not committed to paying in for the long-term.

Borrowing can be harder

Borrowing can be difficult. Your personal earnings may not fully reflect the business income, and this can make arranging mortgages tricky for you. The process can take longer, so good advice is invaluable to ensure you get the most suitable deal for you.

It’s all in the plan

Freelancing is risky without a plan. Although planning can take time and effort, it helps to relieve long-term hassle. To thrive as a freelancer, you’ve got to take charge of your money so you can enjoy that freedom without the worry.

For more information or advice:


It is important to take professional advice before making any decision relating to your personal finances. Information within this article is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. We cannot assume legal liability for any errors or omissions it might contain.

1 Office for National Statistics, 2018

2 Association of Independent Professionals and the Self Employed, 2018

3 ‘Generation Self-Employed’ report, 2019