Finances are a very boring topic and most of the time people tend to avoid working on their finances because of that. Money also has a bad reputation: Those that have too much are "bad people" and those that don't have enough are the "lazy" ones.

But once you get to grips with your finances, you will gain so much more freedom. Getting started is very overwhelming. But it's not as difficult as people think. Once you've put some systems in place, you can just sit back and let money do its thing and grow on its own.

Sorting out your finances will lead to financial freedom, better decisions and your future self being very grateful.

Disclaimer

I'm not a financial advisor, I'm just speaking from my own experience based on what I've learned in the last 4+ years as a freelance UX Designer. Use the information below to learn about money and how you can make the most of your finances from a business perspective. Nobody will be as eager to make you more money than yourself, so having a good foundation of financial knowledge will help you achieve your goals faster.

Alright, so let's start with the basics:

Separate your private money from your company's money

Don't think of the money you earn as a freelancer as "your money". It's your company's money. You can pay yourself a salary and dividends from it. But keep that money in separate accounts.

I'm using Starling for my business. The account was set up within minutes and I've not had any issues with Starling since the last 4 years I've had an account with them.

Another reason why it's good to keep those accounts separate is because you'll think differently of how you spend it. If you consider investing in an online course or tickets to a networking event, paying for it from your private money might feel a lot. But using your company's money for it (which then leads to tax deduction 💪 ) will make it easier for you to invest in what's needed for your business.

💩 Start to build a financial buffer - aka a 'shit happens' fund

If we've learned one thing in the last few years, it's that things can change out of nowhere. It's good to have a safety net - ideally tied together with a mix of easily accessible cash and some money that you can only access in a certain amount of time in the future.

☔ How much money should I put into my rainy days bucket?

I recommend to have a minimum of 3 months of what you'd spend on a normal basis in instantly accessible savings. 3 months is usually a good buffer until you find your next gig.

☝️ But keep in mind, if you're like me and you send your invoices at the end of the month with 30 day payment terms, it means that you will likely see your money 2 months after you've worked for it. So keep an eye on your cashflow 👀

Ideally, just for extra peace of mind, have 6 months worth of savings. What I do is I have 3 months worth of costs that I know I have to pay (things like food, accommodation, insurances, software subscriptions I need for the business) in a bank account in a separate savings bucket.

On top of that, I have a "95 Day Notice" account. This means, to access the money, I have to give 3 months notice before I get it back to my account. Might sound odd to some, but this account pays me interest 🤑 and it makes me think twice before I withdraw anything. So far, I haven't had to draw anything from it yet 🤞

🤑 How do I start a financial buffer?

The easy answer: You put the money into an easy-access account and don't touch it!

The tough answer: You need to get that money first. Do you already have some savings that you can put into a bucket separate from your main bank account? Monzo (this is an affiliate link, click to get £5 once you join - UK only) and Starling do that quite well. You can also round up your spending to go into your rainy days bucket.

Pro tip: Open a separate bank account that you transfer the money into and don't take that bank card with you. This way you will only touch that money when you really need it. Make sure that money sits in an easy-access account.

What is an easy-access account?

As the name suggests, it's an account where you can easily access your money. For example the cash you have sitting in your main bank account.

How to manage irregular income

One of the things I hear a lot about why people are scared of going freelance is the irregular income. And every time I wonder: Why are you worried about irregularity when even your lowest income months will likely bring you more money than your last permanent job?

Why are you worried about irregularity when even your lowest income months will likely bring you more money than your last permanent job?

I've tripled my income since going freelance. And I've just had a catch up with my accountant today and just found that in the last financial year of my limited company, I've had a 6-figure revenue 🤯

For transparency: revenue is not the same as profit! I've also hired a sub-contractor which was contributing to the higher revenue, but she got a big chunk of that too, which lead to more expenses. But that's a different story for another article.

👵🏻 Let's talk about the future

Nobody likes to talk about pensions, especially because we're unlikely going to see much of it once we're old. But it's important to have some savings for retirement.

<quote>Most freelancers I talk to don't pay into a pension.</quote>

If science and the knowledge in health care continues to grow, I bet we're going to turn about 90+ years old if we're not unfortunate enough to be hit by a bus before then. So let's make sure we spend the winter time of our lives with a comfortable financial buffer.

Problem is, most freelancers I talk to don't worry about their pension. They're so concentrated on the here and now, on finding the next client and getting the work done, that they don't look into longer term finances.

Make sure you have something in place for retirement

I'm having a personal pension with Moneybox, one I pay into from my Ltd via Penfold (a pension specifically designed for freelancers). And another one with PensionBee (Because I wasn't able to pay into either of the pensions I already had from the umbrella company).

This is not the ideal way to do it. Consider accumulating all your pensions into one pot. But having several pots is better than not having any.

Let's talk about budgeting

Oh my God, I said the B-word 🫢

Before you get going with investing into a pension or outsource to sub-contractors, you have to look at the money currently coming in and what you can do with it. This whole section is a numbers game and could be a bit boring, so if you're not interested in budgeting, scroll down until after the 3 dots.

If you want to budget, then these ratios might help you

There is the 20–30–50 rule you can use for your personal finances, which are:

50% of your income to be spent for your essentials (rent, food etc.)

30%for your nice to haves (new clothes, eating out)

20% for your savings

This budgeting rule works well for employees. But since going freelance, I learned that there's more areas to consider.

Now that I'm paying myself dividends through my limited company, I also have to pay personal income tax. My income is also much higher than when I was an employee - and I managed to maintain my lifestyle, which means I'm earning more but I'm not spending more 👉 Which means I have more money that I can put into my savings. So personally, I'm dividing my income like this:

30% for essentials

30% for savings

20% for nice to haves

20% for personal tax

It might sound a lot to put 20% aside just for tax. But I'd rather have too much on the side than not enough.

Because of one inside IR35 gig, I got a big tax rebate last year. So I didn't have to spend the 20% I've put aside for tax initially. So that money went straight to my ISA and LISA (highly recommend opening both, you can do this very easily with the Moneybox app if you're UK based).

But normally, you have to pay part of this year's tax upfront for the following tax year, which I didn't have to do last year due to the tax rebate. So now I have to pay this year's taxes PLUS the 50% for the next tax year PLUS the year after. So make sure you have some money aside for the taxman.

If it turns out that you don't have to pay as much tax as expected, you can always put that money into your savings. Which is always a pleasant surprise.

But you just said to split personal and company money?

That's correct. I have a different budgeting rule for the money that comes in for my company. Once the money comes in, I split it into following buckets:

30% for expenses (software, hardware, coffees, wifi, accommodation)

20% for company tax

20% to reinvest in my business (coaching, courses)

16% for VAT

14% for cash flow (to make sure I can pay the sub-contractor in case my client doesn't pay on time)

You don't have to stick to the ratios I've picked for myself. I assume that if you're reading this, you're less than 2 years into your freelance business. So unless you've had a really great first year, chances are you won't have to pay VAT just yet. So your split would look differently.

At the beginning of your freelance career, I recommend to put most of your income aside to build a financial buffer. Once you've got that, invest more into developing your skillset. And I'm not just talking about the skillset for the freelance service you offer (in my case UX Design) but also in marketing, SEO, copywriting, public speaking.. anything that will help you communicate with clients and put your work out there.

• • •

Want to learn more about freelance finances?

I'll be soon launching my first online course specifically for freelancers to cover all things you need to get started with a successful freelance career.

The course won't be a typical video course that you watch in your own time. Instead, it'll be quick 30min zoom calls (because I know we can't get enough of those) with a small group of other freelancers who are also at the beginning of their freelance journey.

🗓 Each week, we'll cover one of the finance topics (see below) where I'll give you an overview of 10–15 minutes and we'll end the session with a Q&A where you can ask your personal finance questions.

The sessions will be recorded in case you can't make it to the live class. But that also means you won't be able to get your personal questions answered.

This group will help you create a network with other freelancersat a similar stage, join a community and support one another.

Why are you doing this?

I realised that what I've learned about finances is quite useful for friends and people I've met at the beginning of their career. And I love seeing people thrive. But also, I want to stop trading my time for money and work on passive income. So this will - in the long run - turn into a video course people will be able to watch in their own time.

And because I want to make sure it answers all the questions people have as a freelancer at the beginning of their career, I'm starting with a small group to see what you want to know and create a better finance course from there.

Note: As the first cohort, you'll get forever access to the course.

I've got 2 slots left, so if you're interested, just send me an email or contact me to let me know you're in. Since it's a very adhoc session and a small group, it'll only be £50 excl. VAT and you'll get forever access to the course and all its updates.

Topics we cover in the Freelance Finance Course

• Money mindset
• Saving for your business
• Taxes (UK focus)
• Business structures (Ltd, sole trader & umbrella)
• Defining and negotiating your rates
• Pensions
• Earning interest
• and more

Is this course for me?

The course is focussed on how to manage your finances as a freelancer in the UK. You'll still learn useful information even if you're not based in the UK. It's mainly the tax section that has a UK focus.

Anything else?

Again, I'm not a financial advisor. So I recommend that once you have a good understanding of what you need and what's possible, to book a session with a financial advisor.

The first session is oftem free. You can then see if you want to continue taking more sessions from there. I've had 2–3 of those calls and at the end, all the advisors said i'm already set up with what they'd normally put in place for people, which is:

• Pension plan
• Insurances for when you get ill/sudden death/income protection
• Savings plan

If you made it this far

Thanks for reading. If you want to learn more about freelancing, give me a follow. You can also read more on my blog or instagram. You can also sign up to my Freelance Blueprint Newsletter.