Spend some time understanding whether you're able to afford freelancing, by considering your income, outgoings and the uncertainty of income which freelancing brings.
Spend some time looking at your current financial position to understand whether you’re able to afford to go freelance, by understanding in your income, your outgoings, and how you might deal with irregular income.
Many freelancers leap into self-employment without doing a personal budget, and aren’t 100% clear on their monthly and annual expenditures, nor the new tax liabilities or costs they might incur.
When moving from job to job, it’s a pretty simple mental calculation to work out if the salary you’re making in the next role will be higher (i.e. more money coming in) or lower (i.e. less money coming in), and what impact that might have on your taxable earnings.
When you’re moving to freelancing however, there are a whole load of new and different financial considerations you’ll need to make, so being sure you’re clear on your household budget is essential.
Spend time to work out how much you are currently bringing home after tax, how much you’re spending each month on the usual things (such as rent, utilities, food) but also understanding the potential new or different costs you might be facing in self-employment, i.e. using your own equipment at work, paying insurance costs, covering time off, etc.
Ensure you understand your current income, outgoings, costs and liabilities. Don’t forget to include things like holidays, savings, pension contributions, travel etc.
If you don’t already have a good understanding of your personal budget, this is the time to do so.
If you’re relying upon a budget you drew up some years ago, update it now, as the cost of living has changed dramatically in recent years.
Try this budget planning tool from Money Saving Expert.
Revise your budget to include any changes which freelancing might bring about, i.e. paying for things you previously relied upon your employer to pay for, changes in travel costs, paying for professional insurance, increased or decreased tax payments. Does that change the amount you might need to bring in, in terms of income?
Check this useful list from Talented Ladies Club of freelancing costs
Research day rates and pricing for the industry you’re working in, in order to understand going rates for people at you level, to estimate what you might be charging, and how many days you might need to work for, or how many projects you must deliver or products you need to sell. Does this seem acheivable? On average there are around 220 working days in a year (after factoring in time holidays).
Tide have a good reference of average day rates across industries and regions of the UK
Review what you already have or plan to build up, and calculate how long you could go without work for - many freelancers have periods of time where they are not working, and if they’ve not built up profiles, may need to rely upon savings.
Do you have a savings pot which you’re willing to dip into, should that happen? If not, do you need to start to build one up?
Most experts will suggest around 6 months of emergency fund.
Read this guide from StepChange on how to build up your Emergency Fund and use this calculator from HSBC to see what you might need to save.
Consider a slightly longer-term view, beyond the next 2-3 years.
Are you looking to buy a house, start a family, purchase a car? Try to consider any major life decisions or large expenditures you might be planning for - how will that change what income you require and outgoings you’ll be spending?
I recognise that dealing with money for many of us is something we avoid, especially in the UK.
It can feel like an awkward topic of conversation, and many of us are not comfortable thinking about it - but being clear on your financial position is super important before and during self-employment.
It’s a different way of generating income, and can put your financial wellbeing and credit score at risk if you do not put good preperation into this.
Don’t bury your head on this one - and get some independent and professional advice if you’re finding it challenging.
It's important to understand the risks of self-employment and freelancing - so you can make a decision whether its right for you.
It's never too early to start putting away some money to build up an emergency fund, even if you never go freelance.
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