The Beginner's Guide to Money Management as a Freelancer

From the moment I started agency life in my early 20s, I dreamed of one day becoming one of the glamourous freelancers that flitted in and out of the office – often coming straight from a leisurely morning at the beach – picking the jobs they liked and turning up their noses to those that they didn’t.

Fast forward 10 years, I’ve recently gone through a stint of freelancing, and I can sadly confirm that freelancing is not all glamour and beach days. It’s a tough, but still rewarding, combination of managing your time and workload, marketing yourself and your services, and building up a network of people that you work well with, and appreciate your skills. It’s also a journey in managing your money.

When I started out as a freelancer, I had so many questions when it came to managing my money: how do I deal with tax? How should I price myself? What happens if I have a dry month? Luckily, I had a great network of freelance friends who walked me through the first few steps in setting myself up for success in the freelance world.

If you’re about to take the plunge into independent work and consulting, or you’re new to freelancing (or you’re not even that new but you could use a few pointers), this guide is for you. I’ve combined the advice I got from those same friends, the lessons I learnt along the way, and collaborated with our consulting CFO at Franc, Lyndall Marwick, who is a freelancer with finance skills – a perfect combination for this topic.

Here are the burning questions I had, and that I’m sure you have, too:

How do I start freelancing, and should I invest money for it?

The first piece of advice that every freelancer gave me before I started was to build your network, credibility and skillset first. This means getting a bit of experience, documenting your projects and successes, and making some good and reliable contacts that you work well with and who know the value of your offering.

You also need to build up an emergency fund. Be prepared for a potentially slow start and months where income runs dry. It might take you a bit of time to build up your clientele, find your service sweet spot, and tap into the right marketing or networking channels to keep work coming. That means building up an emergency fund to cover 3-6 months’ worth of expenses. 3 or 6 months, you ask? Well, that depends on your risk appetite, and what helps you sleep at night.

Top Tip 💡 Investing your money regularly into a fund that gives you growth but has low risk, like a money market fund, will help you build that emergency fund up quicker, and it’s best to do this well before you take the leap into independent work.

How do I manage my income and expenses?

First things first, many freelancers swear by opening a separate bank account for your freelance income to go into, and your business expenses to go out of. This will incur extra banking costs, but it will make keeping track of your cash flow easier, and help you manage your money when it's inconsistent (by paying yourself an income into your personal account).

The next important thing is to know and track your fixed and variable expenses. Start by tracking your expenses over a few months – either manually in a spreadsheet, or automatically through a budgeting app like 22Seven. Start to group your expenses into categories (like Groceries, Insurance, or Transport) and divide them into two buckets:

Fixed costs: expenses you can’t reduce or get rid of
Variable costs: expenses you can dial back if you need to

This will help you understand what you need to earn to cover your costs, what you can cut back on when times are tough, and will come in handy when you’re doing your tax return (more on that later).

When it comes to your income – and this is the fun part – it’s important that you track every project and task you’re commissioned to do as a freelancer. This not only helps you determine your income, but also helps you keep track of invoices. And that helps you get paid!

Top Tip 💡You can get invoicing and accounting software for this, but if you’re just starting out it’s not really necessary – you can save the cost by doing it manually on an Excel or Google sheet. Because no one wants to reinvent the wheel, Lyndall and I teamed up to create a freelance budget template that helps us keep track of our income and expenses:

Download the freelance budget template

How do I manage my taxes as a freelancer?

Freelancers pay provisional tax: you submit an IRP6 tax return and make manual payments to SARS at the end of August (mid tax season), and at the end of February (end of tax season). You’re essentially estimating your annual tax based on previous income, and paying it to SARS twice a year.

Freelancers also need to submit an ITR12 tax return like regular taxpayers on 31 January the following year (11 months after the tax season closes). If your income sky-rockets (the dream!) and your estimation doesn’t fall within 90% of the actual amount you owe before this stage, there’s also an optional third payment at the end of September (7 months after tax season closes) to keep your total tax payment within the permitted range and avoid a penalty when it does come to submitting that ITR12 tax return.

If you’re transitioning from full-time work to freelance work, you’ll need to register the change from a regular taxpayer to a provisional taxpayer, either in a SARS branch or via e-Filing. This is where you’ll complete and submit your returns, too.

Because your tax isn’t automatically deducted from your salary before you receive it like regular taxpayers, it can be tempting to see all your income as money you can spend. When it comes to tax-paying season, however, you’ll find yourself needing to pay a lump sum that you didn’t provision for, which is going to hurt.

Lyndall advises you put at least 25% of the income that comes in monthly in a completely separate, preferably interest-bearing account. That money doesn’t belong to you, and don’t expect to ever use it. If you do happen to get a good return based on your tax-deductible business expenses (more on that in a bit), it will be a nice surprise (and should probably be invested for future tax-paying, just in case).

The great part of being a freelancer is that you can claim back tax-deductible business expenses that help you do your work. The obvious ones are phone and internet costs, travel and transport, and insurance on your office equipment. You might also be able to claim back some not-so-obvious expenses, like restaurant bills for taking a client out to lunch, or hairdresser rates if being presentable is important for your job. It’s not necessary to keep receipts from all these costs. Just take pictures of receipts for any bigger expenses (like a new desk, or laptop, for example) and keep it stored safely where you can easily access it.

Top Tip 💡Figuring out what you can claim back can be tricky, which is where our next piece of advice comes in: get a tax consultant to help you with your freelance tax. They often charge a small percentage of the return you might get from SARS (don’t trust them if they ask for an upfront payment) which ends up being very worth it!

What are some billing or invoicing tips for freelancers?

Most freelancers aren’t prepared for the wild, wild West of invoicing and fighting to be paid. Unfortunately, late payments and miscommunication is common, and can be problematic when you really need that extra payment to cover your expenses for the month. Lyndall’s advice from the finance office? Get a very good understanding of the finance department and their processes for any client you work with. Here are some helpful questions to ask upfront when you agree to take on a new freelance job:

- What do I need to include in my invoice to have it processed?
- What is your turnaround time in processing an invoice?
- When is your pay run?
- What is your pay frequency?
- Who is processing my payment? (If you can, connect with them and build a good working relationship!)
- What are your payment terms? (Some businesses pay within 7 days of receiving your invoice, others 30 days. This can affect your cash flow forecasting.)

Top Tip 💡Make sure you include all the right information on your invoice (I love this free and simple freelance invoicing tool), send it well before pay run, and send the business a friendly reminder a few days after its due. If the freelance project you’ve signed up to do is longer than a month, negotiate for monthly payments to help your cash flow.

How do I handle cash flow and uncertain income as a freelancer?

Which brings us to the last important topic: making sure you have regular income coming into your bank account every month. In the template we put together, you can keep track of income you’ve earned month-to-month, but also start to forecast what you think you might earn and, most importantly, what you anticipate you’re going to spend in the months going forward.

If you’re new to freelancing, we recommend you schedule an hour in your calendar every month (during work hours – this is your job now!) to fill the budget in and update your forecast. It’s helpful to track your expenses daily or weekly (or via a budgeting app) so that data is easily accessible.

This will help to alert you if a month is looking thin and expenses are looming, and over time, will help you better manage the unpredictability of income as a freelancer. Remember, one month might be amazing, and you’ll be reeling in all the cash, but others might not. You want to make sure you’re spreading your income equally across your months so you’re never in financial trouble.

Here are some other tips I’ve gathered for ensuring you have a consistent flow of work and income:

- Favour long-term projects or retainers over short-term projects – they’ll ensure income for a few months as opposed to once-off payments.
- If you notice that your pipeline of work is looking dry for the next few months, reach out to your network and let them know you have capacity.
- If you’re still building up your network, look at freelancer platforms like Upwork or Fiverr. They have some great tips for setting up your profile and marketing to potential clients.
- Use LinkedIn or Instagram (depends what industry you’re in) to publish thought leadership pieces and tips that position you as an expert in your space.

Top Tip 💡 Got a client that isn't paying? Unfortunately, in the world of freelancing, that’s not uncommon. If you’ve covered all your invoicing bases and got in touch directly with the finance department (if they have one), and still don't have any luck, there’s one more sneaky trick that seems to work: talk to the person that referred you to them. There’s nothing like some reputation management to galvanise a person into action!

Most important of all, enjoy your new-found freedom and prepare for the ride! Freelancing can be challenging, but having the opportunity to manage your own time and focus on the work you love is so worth it.