Freelancing gives you a lot of freedom and flexibility. On the other hand, all too often it also comes with a wildly fluctuating income – great in the good months, not so good in the bad ones. At a time when the cost of living is going up (and exchange rates don’t always work in our favour either) it is even more important than ever to manage your finances properly.
In this article, we’ll explore strategies for tackling the unique challenges that freelance translators face.
Work out what you need
Where you’re going, you do need roads…so it’s up to you to build them. And it is important to know how much money you do need to bring in, and what it has to cover.
Take a realistic look, based on your bank statements and bills, at everything you need to cover: food, housing, travel and so on. (Some of this may be tax-deductible, but you still need to budget for it!). Set this out systematically, in a spreadsheet or using another tool (see below).
This will give you a realistic idea of how much you need to earn overall just to cover the basics. Remember also that there are more than basics – emergencies, extras and indeed non-essentials that make life enjoyable. Divide your expenses into essential and discretionary categories.
Work out what’s coming in
You also need a clearer idea of how much you are in fact earning at the moment, going through your previous bank statements and accounts for the past few years. This can serve as a baseline for your budgeting and help you anticipate slow periods.
Of course, freelancing income is by definition not fixed: the most regular engagements can be cancelled. But balancing your current income against your expenditure is always worth doing (however daunting it can appear).
Get the structure in place
If you currently have one bank account – possibly even a joint account with a partner – for everything, now is the time to rethink. Set up a separate bank account for your business, and make all work-related payments and work-related outgoings from this account. This makes it much easier to track your income and expenses – and it also makes it much easier to do your accounts, whether you do them yourself or use an accountant.
In fact even if you do your own accounts, it is worth speaking to a professional accountant and possibly also a financial advisor, because they can give you professional advice on best financial structure(s) you need.
You then pay from your business account into your personal account or accounts, and you can also see how much money you have in reserve. This is separate from an ‘emergency savings’ (see below); it’s the money that can tide you over in months when you are earning less. Many advisors recommend you have three months’ income in reserve: and you should if at all possible have something that will keep you going. You may choose to do this as a separate savings account if you prefer – either with an automatic transfer or paying into it as and when your business account is doing particularly well.
Budget for the bad times
In addition to work crises, there are emergencies of other kinds – domestic, family or technical. (If your computer fails, you don’t have an option about buying another, for example!). It’s worth considering an ‘emergency savings’ pot. You don’t have to pay a huge amount into it every month, but it may be a buffer when you do have to cover unexpected outgoings.
Pay your taxes
Freelancers are responsible for their own taxes (including National Insurance if you’re based in the UK). Once again, consider a separate savings account, or be aware that any reserves in your business account will have to cover taxes as well as everything else. And again, an accountant can be a very useful source of advice.
Coming after a list like this, a pension may be the last thing on your mind – especially if you’re in the early stages of a career. But even if you’re fully intending now to work till you drop, when you really do get back to the future you may feel differently. Get professional advice and pay in from your business account.
Keep on track
Keep on top of what you’re spending, and cut back on non-essential expenses during the slower months. A spreadsheet or one of the tools we recommend will help with this. This is particularly important for your business account, as you’ll be able to see what you’ve paid into your domestic or household accounts every month.
After so much about outgoings, what about incomings? Prompt and efficient invoicing is your financial lifeline. Invoice clients promptly and clearly outline your payment terms (in the UK, there are legal obligations for clients who pay late, for instance). Consider using accounting software or platforms designed for freelancers to streamline this process.
There are also things you can do to solve income that spikes up and down. If it’s a longer project, you are quite within your rights to ask to be paid in stages – possibly even with a deposit at the beginning – so that you have a steady stream of income as you complete project phases.
You can also request that regular clients move to a monthly retainer, based on their payments over the year.
Keep up to date – and in touch
Two outgoings that are well worth the money are networking and continuous professional development (CPD) – not least because they’re an important part of maximising your earning potential. With networking – in person, through social media and at industry events – you will meet potential clients and new colleagues, who may well want to work with you or indeed refer you for work they can’t do. And keeping on top of your professional field, as well as the specialisms in which you work, means you can demonstrate your expertise, work with top-tier clients – and charge accordingly.
Spread the load
The best way to ensure that your income can cope with ebbs and flows is to ensure that you have a good spread of clients. Diversify your client portfolio, and pursue clients from different industries and locations so that if one area or topic becomes less in demand, you have others to keep you going.
Make it automatic
Here are my top three recommended tech tools for streamlining your financial management…
- YNAB (You Need A Budget): YNAB is a budgeting app that goes well beyond tracking expenses. It helps you earmark funds for different categories, including savings and variable expenses. YNAB’s proactive approach encourages users to give every dollar a job, ensuring that you’re always prepared for upcoming expenses.
- PayPal Business: PayPal Business offers invoicing and payment processing solutions for freelancers. It allows clients to pay directly through PayPal, credit cards, or bank transfers, and it provides tools to track payments and overdue invoices.
- Toggl Track: Toggl Track is a time tracking tool that can help you accurately bill clients for the time you spend on projects. It’s especially useful if you charge by the hour and want to ensure you’re compensated for all your work.