How to be the boss of your money as a freelancer

There are a lot of things to recommend about the freelance lifestyle - like flexible working hours or choosing the projects you want to work on. But matching pension contributions and a regular pay cheque aren't among them. Being your own boss can be empowering but it also comes with its own challenges of being a financially responsible adult without having the cushion of benefits that come with a full-time gig.

In the UK alone,the number of self-employed people now accounts for around 15% of the working population. Of those self-employed, less than a third are paying into a pension for their retirement leaving a real risk that this group of the workforcewill face a significant living-squeeze cost in later life. Couple that with a reported tax rise in 2020 and it pays to put some good habits in place that encourage a financially-happy future.

So whether you are trying out freelancing for the first time, or are a seasoned pro, here are five tips that will help you lead a healthier, more secure, financial life as a freelancer, as told by Brian Byrnes from Wealthsimple.

Buildan Emergency Fund

Without a steady stream of reliable income, it's important to build up an emergency fund of three to six months of cash that will cover living expenses in case anything unexpected comes up. You should already have this built up before making the leap to freelance but if not, make sure it's your first priority.

Keep this reserve accessible in case you need to use it. A savings account will do the trick.

Remember the 30 Percent Rule

It's hard not to feel excited the first time you see your first freelance pay cheque. But remember, taxes aren't taken out. A good rule of thumb is to stash away 30% of each pay cheque and keep it in separate savings account so that when tax time comes around you'll be prepared to file your self-assessment.

This year’s tax deadline is right around the corner – 31st January – and HMRC has warned that nearly half of freelancers are still to complete their returns. It’s important to pay on time otherwise you'll get levied with a £100 fee.

Start a pension

One of the biggest downsides of being your own boss is that you miss out on regular pension contributions from your employer. Last year the UK introduced auto-enrolment which means that all employees will be automatically enrolled into their workplace's pension scheme if they are at a full-time gig.

To make sure you are building enough of a retirement nest, you should research opening a SIPP (Self-Invested Personal Pension). SIPPs are a great tax-friendly way to save for the future, regardless of if you are set up as a sole trader or limited company. Dripping money into a pension might not seem like a priority right now but think about 30 years down the road and your future self will thank you!

Set a goal and stick to it

Set a goal for how much you'd like to save or invest each month and stick to it. The 50-30-20 rule is a great place to start. In this scenario you devout fifty percent of your income to basic necessities like rent or transportation. Thirty percent is reserved for needs (not necessities) like a drink at the pub with colleagues or a night at the cinema. The remaining twenty percent goes towards your financial well-being whether that be stashing money away in a savings, investment and pension account - or in an ideal world all three!

To make it easier, have that money automatically deposited into your saving or investment account each month. This means you'll never have to think about it and the temptation will be removed to use it at any time.

If something important comes up and you do need the money, most investment platforms or saving accounts will let you access your cash with relative ease but aim to leave it untouched so it can grow over time.

Money management is king

It may sound simple, but keep track of your daily spending. A lot of people don't believe that they have the spare cash to go towards saving but if you look closely at where you are spending there is always an opportunity to stash away more. A great way to track this is by either being old-school and pulling out a spreadsheet or using money-management software like Emma or Money Dashboard. While you don't want to cut away life's little luxuries - like your flat white that you pick-up on the way to work - it's important to know where your money is going and make decisions about what you need to put away to make sure you are setting yourself up for a strong financial future.

More on freelancer finances and boosting your income.