Whether you’re self-employed, just starting out or thinking about quitting your full-time job, you might need to consider how to best manage your money. As a freelancer, money management is crucial in order to expand your business or simply get through a dry spell. There’s a whole variety of ways to do so and everybody has a different experience – but today I would like to share with you mine. Below are some of the lessons I learnt in my first year working for myself that I’ve found to be invaluable pieces of knowledge that they don’t teach you in school!
Track your time
Recording your timings are extremely important for a number of reasons. A biggie is to simply ensure that you are getting paid enough for the hours you’re working. It can be easy when we are in the thick of a project to suddenly realise you can’t remember how many hours you’ve put in! You could end up going way over what you quoted without realising, therefore losing money – fast! So, keeping records of everything from emails and phone conversations to design time to ensure you’re on track.
Another reason is that you can use these records to share with your clients if they ever begin to question the length of the project. This can be pretty useful if your client keeps adding extra elements or changing the goal posts – you can use it as a leverage to protect yourself and show how your time is being allocated. Perhaps you can see areas that need to be cut back on? Are you spending too long on a certain part of the process?
And finally, it can keep your personal tasks in check too! Procrastination and taking breaks can be used in a positive way, but it’s best to keep an eye on how long you’re spending on your down time! You may want to allocate, say, one hour each day to catch up with social etc. and by timing it you can easily see if you’re going over and wasting more time than you can afford. It’s that extra kick up the bum to keep pushing!
A simple way to record all your tasks could be using a simple timesheet app such as Toggl.
Record your expenses
An absolute staple for anyone who is self-employed is to record each and every one of your business expenses. You could be claiming thousands back if you’re savvy about it. How it works is that the money you spend on the running costs of your business can be deducted from your income to give you your taxable profit. An example scenario via www.gov.uk explains: “Your turnover is £40,000, and you claim £10,000 in allowable expenses. You only pay tax on the remaining £30,000 – known as your taxable profit.” Simple! So what is classed as an allowable expense? It could be anything from your work equipment to taking a client for a cup of coffee. Perhaps you pay a monthly rental for your studio? Yep. Your business phone bill? Yep. Your Adobe software? Yep. All of these and many more! According to www.gov.uk, these categories are all considered reasonable expenses:
office costs, e.g. stationery or phone bills
travel costs, e.g. fuel, parking, train or bus fares
clothing expenses, e.g. uniforms
staff costs, e.g. salaries or subcontractor costs
things you buy to sell on, e.g. stock or raw materials
financial costs, e.g. insurance or bank charges
costs of your business premises, e.g. heating, lighting, business rates
advertising or marketing, e.g. website costs
At the end of each tax year, you’ll need to have all of these expenses properly organised, so remember to always keep your receipts! There are apps and software available to keep everything in check such as Quick Books and Zoho.
Get invoicing and accounting software
Ah, the fun stuff. Give yourself more time to spend on your creative work by keeping the time spent on your invoicing and accounts to a minimum. There’s a whole plethora of apps and softwares available at your fingertips to create quick, beautiful and personalised documents with automated inputs and payment tracking features. Quick Books and Zoho are great for these, in addition to recording your expenses, so why not keep it all under the same roof? Another benefit is that you can easily cast over your sales and profits each month or across the year to track your good months, bad months and everything in between. Knowing the patterns of your sales is a great way to forecast your cash flow for the future, meaning you can be prepared for quieter months and quickly notice if something isn’t right!
Prepare for your taxes in advance
So you’ve just been working hard on a project, and finally, payday comes! Yay! Easy tiger, not all of that money belongs to you. Don’t forget about the tax man, your national insurance and perhaps you even have a student loan to think about? The best way to avoid a massive stinger at the end of the tax year is to prepare yourself as best as possible by putting a small percentage of your wages away in a separate account. You may want to stash around 20%, just to be safe or alternatively you could use tax calculators that are available online to help you determine a more accurate figure.
Jess Caddick is passionate designer and design director currently working for Rally in Salt Lake City, Utah. Jess has a broad and varied design style and when she isn't busy keeping her clients happy she also judges for the FWA.