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Contractor and Freelance Money Management Tips

As a freelancer or sole trader, finding ways to keep costs down and to save money is essential, whether you’re just starting out or already have a well-established business.

It can be a challenge to stay on top of your cash flow as you have to do everything yourself while still ensuring your day-to-day tasks get done. This is where we come in. As accountants for freelancers, we aim to help you figure out how to manage your budget and save for a rainy day, so take a look at our money-saving tips below.

  1. Choose Your Workplace

  2. Track Your Time

  3. Claim Expenses

  4. Review Subscriptions

  5. Have a Business Bank Account

  6. Put Money Aside for Tax

  7. Ensure Your Documentation is in Order

  8. Make a New Budget Often

  9. Take Advantage of Discounts

  10. Opt for Refurbished Equipment

  11. Have Coffee at Home

  12. Purchase Annually

  13. Keep the Costs of Meetings Low

  14. Negotiate Better Rates

  15. Work on Longer-Term Projects

  16. Use a Bookkeeping Tool

  17. Pay Taxes on Time

  18. Get an Accountant

1. Choose Your Workplace

Each person is different so, while some work better at home, typing over a coffee table, others prefer to work at an office desk in a professional, formal environment. When you’re in full-time employment, you may not get the option but, as a freelancer, it’s your choice. Before you even start delivering your services, make a decision about where you’re going to work.

If you prefer to work away from home – perhaps due to not wanting to mix your personal with your professional life – you don’t have to pay an arm and a leg for office space either. When looking to save money as a freelancer, you may want to consider something as simple as a coffee shop or a co-working space, which have become more popular in recent years.

These spaces are designed to encourage productivity and refer to sharing working environments with other professionals, so that you don’t have to work alone if you prefer some background noise.

2. Track Your Time

When you become self-employed, every second of your time counts. It’s crucial that you know how much time you’re spending on your clients’ tasks and which time should be billed; if you don’t track it accurately, you risk losing money or undercharging a project.

So, make sure you’re recording every single minute and you’ll find it easier to stay on top of your billing. Our FreeAgent accounting software can help with this. When you become a client, you get 24/7 access to this tool, which, besides providing you with a real-time view of your accounts, also has a stopwatch timer you can use to keep track of your work.

Simply have it running in the background while you chip away at your projects and, when you pause it, you can then create a time slip to attach to your invoice. As a freelancer with your own business, you’re not entitled to traditional employee rights, so this is a good way to make sure you’re actually making the most of your time and not wasting time or money.

3. Claim Expenses

In our article “Expenses of a Limited Company: A Complete Guide“, we talked about expenses that contractors can claim. As a freelancer, you also have the opportunity to claim some expenses. For example, if you work from home, you’re going to be using more utilities, so you might as well claim for part of the water, gas and electricity costs.

You may also be able to claim travel expenses, such as fuel and train fares. You may not have to commute to work, but you have to take business trips or meet with clients somewhere. It’s important to check what you can claim, as you may be able to include parking and overnight stays as well.

4. Review Subscriptions

If you’re looking to cut down costs in your business, take stock of your outgoings and check for recurring expenses. For example, subscriptions to magazines or software that you don’t really need – while it may not seem like much, monthly subscription costs add up and you may find that you’re paying a lot of money for something you don’t use.

Cancel any memberships and subscriptions for services and products that are useless to you and your business and make sure you haven’t forgotten to cancel services after 30-day trials either; it’s easy to forget about these and you end up paying once the free month is up.

5. Have a Business Bank Account

As a freelancer, you don’t always need a business bank account; however, there are so many advantages of getting one that you should consider keeping your accounts separate no matter what. For example, it’s easier to keep track of your business incomings and outgoings if you have a separate account just for that.

You can easily spot opportunities to save money if you can clearly see where it’s going. In addition, you can request a low-interest business credit card to make it simpler to manage your payments, which will also help you to improve your credit score.

6. Put Money Aside for Tax

An employee doesn’t have to worry about setting money aside for taxes, as it’s all discounted at the source. However, when you’re a freelancer, you have to figure everything out yourself, which can be a complicated and frustrating process.

The best way of ensuring you save enough money to pay tax and National Insurance contributions is to set aside a percentage of your salary. You don’t have to pay taxes in the first year if you make less than £12,500 as this is your personal allowance for the tax year of 2020/21.

By putting money aside, you are prepared for tax season and don’t have to worry about trying to come up with the amount for HMRC last-minute. While you may not pay taxes in the beginning, it’s important to remember your business’ set-up costs, which can be expensive, depending on the type of business you have.

Getting into the habit of saving part of your wages will get you through periods of inactivity as well. An additional freelance money management tip is to put some of that money into a high rate savings account to make extra money.

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7. Ensure Your Documentation is in Order

Freelancers have to file a self-assessment tax return every year, which many find a headache. However, putting it off until last minute won’t make it easier; on the contrary, it can stress you out and cost you more than it should if you end up submitting it late.

Missing tax deadlines comes with late fees or penalties, so it’s something to be avoided at all costs. So, make sure all of your paperwork is organised and you know exactly how much money you’ve made and how much you spent. Track your invoices and keep hold of your receipts as well.

This way, you can be confident that you’ve not missed anything when you finally file the return. Our FreeAgent accounting software is great for this, as it helps you to stay on top of your accounts.

8. Make a New Budget Often

It’s not enough – or realistic – to make a budget and then stick to it for months and years on end. After all, your expenses and cost of living will rarely stay the same, be it because you had to purchase new software or because your council tax is going up. So, it stands to reason that you should create a new budget monthly to reflect these changes.

Budgeting allows you to stay on top of all costings and to help you spend less. List all expenses before the start of a new month and make sure to keep previous budgets as records, so that you know whether you’re spending more or less when compared to previous months.

If you find that your expenses have gone up, it will be easy to find the cause when you’ve kept track of it all.

9. Take Advantage of Discounts

If you need to purchase something for your business, like a new computer or stationery, try to find a discount or use coupons if possible. This can help you to save money that you can put into other parts of your business instead. Many companies offer discount codes, so you’re likely to run into great deals.

Plus, you want to shop around and compare prices as well, so that you can find the lowest possible prices without compromising on quality. For example, if you’ve been with the same electricity company for years, you may find a better rate somewhere else, especially as companies tend to offer discounts for new clients.

This means you can cut down your utility bills and invest that extra money in your business.

10. Opt for Refurbished Equipment

Purchasing all the equipment needed to do your job, such as computers, printers and phones, can be costly. To keep these costs down, you can invest in refurbished equipment instead of purchasing a brand-new product.

Many companies sell refurbished computers, for example, which sell for a fraction of the price of the original machines, but which are just as good. If your work won’t suffer because the machine is an older model or has a cosmetic defect, then why not try this option and keep costs down?

In the same vein, second-hand furniture can be a good way to save money on your business, especially if you’re just starting out.

11. Have Coffee at Home

While it’s great to go out for a meal or a cup of coffee, you can keep costs low by eating and having coffee at home if you’re on a budget.

Life is full of little pleasures, however, so don’t cut out everything completely. If you’re planning on going out with family or friends on the weekend, for example, make sure that you eat at home during the week so that you don’t feel guilty about splurging on Saturday or Sunday.

In short, make cuts wherever feasible but don’t go overboard. Part of what makes freelancing so attractive is how you can be your own boss and make the rules, so make sure that you take advantage of this.

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12. Purchase Annually

While it seems better and cheaper to pay for a service or product monthly, as you’re spreading the cost, you may want to look into buying annually instead. If you’re new in business and have a lot of start-up costs, you may not be able to do a single payment but, if you can, you can save up to hundreds of pounds simply by paying upfront.

If you pay a monthly £4.99 subscription fee for a magazine, for instance, you’re spending £59.88 a year – however, if the annual subscription cost is £45, you’re already saving £14.88.

Bigger purchases will mean bigger savings, so try to purchase the product or service straightaway, even if you have to save up to get it. If you want to upgrade a design software that costs £450 a year, you can put £37.5 aside every month to buy it.

13. Keep the Costs of Meetings Low

Most people are still working from home but, once most people go back to meeting in person instead of doing video calls, you’ll want to arrange meetings in inexpensive locations. Meeting new clients is exciting and it’s only natural you’d want to make sure the meeting goes well. Still, if you’re meeting with a lot of people and always choosing to do it over lunch, for instance, you can quickly go over budget.

Whether you meet over a coffee, over Skype or go for a walking meeting, it’s important to think about these extra costs, since they can quickly get out of hand.

14. Negotiate Better Rates

Are you finding it impossible to save money as a freelancer? If you’ve gone over your expenses and cut out anything you don’t need, then it may be time to review your rates. It’s normal for freelancers to set lower rates if they are new to the freelancing world and want to gain more experience before charging more.

However, freelancers shouldn’t set a rate so low that they end up losing out; they also need to value themselves and their skills. There is, therefore, a delicate balance to maintain when looking for gigs.

Make sure that you’re charging a good rate by considering your living costs, monthly expenses and taxes. If you have experience in your industry, have a lot of skills or have specific knowledge that is sought-after by clients, you can raise your hourly or daily rates to reflect this.

In turn, this will allow you to save more money as well, which you can put into a savings account or invest in your business.

15. Work on Longer-Term Projects

While this isn’t always possible, you can still try to choose long-term projects, which often make for better income sources. This is because one-time projects are typically shorter and not as profitable – they can help you to gain experience or build a reputation but may not be the best option if you want to keep growing your venture.

Ask previous clients if they have more work for you and apply for contracts that require a long-term commitment, for example, and you’ll soon find a job that will pay you for a longer period of time – this will then help you to invest the money back into the business or to save for the future.

16. Use a Bookkeeping Tool

As we mentioned above, using accounting software like FreeAgent will help you to manage your accounts better. You can stay on top of all transactions, expenses and taxes, and you can also get real-time information to help you inform your decisions.

You can also access this information at any time of day and night and from any device, be it your phone, tablet or computer. This means you can manage your business while on the go and check receipts, graphs, invoices and quotes whenever you need.

FreeAgent also provides you with reminders for key tax dates, so that you don’t miss a single deadline. It’s a thousand times easier to stay organised when using a bookkeeping tool, and this will also benefit you when it’s time to submit your tax returns, since all your paperwork is in the same place.

17. Pay Taxes on Time

Meeting all deadlines will save you money because you’ll avoid paying extra fees and penalties. Paying your taxes on time will also give you peace of mind, since you don’t have to worry about HMRC contacting you.

We’re already talked about the importance of putting money aside for tax, but it’s equally crucial that you stay on top of all tax dates. As a freelancer, this includes 31 January for your self-assessment tax return if you’re sending it to HMRC online, for instance. By paying what you owe by this date, you can also feel more in control of your business and finances.

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18. Get an Accountant

As sole trader accountants, we understand that staying on top of your business accounts can be a hassle, especially when you only have so many hours in a day to actually do your job. We also know all the tricks when it comes to taxes, so why not let us take care of everything for you? With an accountant on board, you can boost your business’ tax efficiency and save money.

At Gorilla Accounting, we’re up to date on all legislation and law that can affect self-employment, whether you’re a freelancer or contractor, and know how to deal with even the most complex financial matters in a simple way.

When you become a client, we will even answer your urgent questions on the same day if you contact us before 3pm. You’ll have your own dedicated accountant who will offer specialist advice on how to save money and run your accounts more efficiently.

To learn more about how we can help with freelance money management, don’t hesitate to get in touch with us on 0330 024 0406. You can leave us a message as well, and our professional team will get back to you to discuss your requirements.

For now, why not check out our contractor tax calculator to see how much money you could be taking home?

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