Financial Security for Freelancers and How to Achieve It

Working as a freelancer is a rollercoaster of ups and downs. One month you may be working 16 hour days, seven days a week, and the next, you’re sitting around twiddling your thumbs waiting for work to trickle in. This type of lifestyle has a tendency to make anyone feel insecure. It’s not a problem if you are a digital nomad, backpacking around the world and living on peanuts, but if you have bills to pay, a dwindling bank account is not much fun.

There are many ways to achieve financial security, but for the purposes of this article, I am talking about saving enough money to pay the bills for three months. Three months is a good cushion of savings, but if you want to be really cautious, go for six months’ of savings. Think of this as your rainy day fund. In an ideal world, you won’t need to touch it, but if everything goes pear-shaped, you have a bit of breathing space.

Living hand-to-mouth doesn’t allow for saving money, so this is where you need to be creative. You have two choices. You can spend less and put the money you save into a separate account, or you can earn more and do the same. Either way, it’s essential that you start saving.

Start Saving

Open a savings account, preferably one that you can access online. Make a regular deposit from your main bank account, or set up a standing order. Think little and often. If you save consistently, you should see the balance rise fairly quickly. Once you have your safety net, start paying off any debts you have. Debt is expensive, so it’s pointless saving money if you are paying interest on loans or credit cards.

Tax

Tax is a necessary evil. Sadly, we all have to pay tax on our income, even if it would be nice if we didn’t. At the moment,tax liability is calculated once a year when you or your accountant complete a self-assessment tax return, to a quarterly system in 2018.

It’s a really good idea to save money towards your tax bill instead of waiting until you complete the self-assessment form. I use a PAYE calculator to work out what my deductions are each month and channel the money into a separate account. This gives me confidence that I will have the money available when it’s time to pay my tax bill.

Diversify

Now that you have a savings pot and some money set aside for your tax bill, it’s time to think about maximising your income. Having one income stream is good, but creating more than one is even better. There is an old English proverb that says “don’t put all of your eggs in one basket”. How true this is!

If your work dries up, as sometimes happen, you have more protection if you can earn money from another source. How you do this is up to you, but there are always options. Selling online is one way to earn extra income, or market your services in a different way. For example, if you are an expert at something, write e-Books and sell them via your website. The more income streams you have, the better. It’s the best protection against economic uncertainty.

Talk to a financial advisor if you need advice on how to invest your savings or reduce your debt burden, but don’t do anything risky like forex trading or backing a 100/1 outsider in the Grand National.

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Rachel

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