What freelancing has taught me about money

In this article, I'm sharing with you what I learned about money in my last 3 years of freelancing. I know finances can be overwhelming, especially when you just get started, but it's not that difficult. Let me break it down for you.

My background

I always had an interest in money, because let's be honest, life is so much easier when you have it, than when you don't. I'm now earning a very comfortable income for my age, but it wasn't always like this. There was a time when I had 3 jobs, so I could afford my full time studies and rent in Vienna. One of those jobs was an unpaid internship at an advertising agency.

When I moved to London, my first job paid minimum wage. I earned about £1,100 a month after tax. My rent was £650 for a small room in a flat share. Commuting would eat up another £150, so I had £300 left for food and whatever else I wanted to do in life.

In hindsight, I'm glad that I went through years of living pay check to pay check. It taught me to appreciate the income I have now. And most of all, I appreciate the moments when I sit in a restaurant and can order what I want, not what my budget tells me to.

1. You need the right money mindset

Most people just skim-read, so let me give you the most important information first: The way you think and feel about money will massively impact how you act with your money.

Do you have a scarcity mindset? Do you think you have to work hard for money and once you have it, that you can't spend it? Or do you splurge and spend it as soon as you have it?

When you think that money is difficult to get, you will actually struggle to receive it. It's like a self-fulfilling prophecy. Money comes and goes. To get money, you have to spend it. It sounds odd, but once you understand this it will make your life easier. The question is: where to invest it in and how much?

This is not about bitcoins and shares

I'm not getting into shares and bitcoins in this article. I'm not a financial advisor and I'm a lazy investor, which means I invest in something and am planing to let it sit there for 10+ years. Historically, if you put your eggs in all kinds of baskets, and let it sit, there's almost no chance for you to lose the money you invested.

2. Invest in yourself

One thing I do think everyone should invest in is themselves. Invest in therapy, invest in coaches, invest in education. If you asked me what the best thing was that I ever invested in, the answer might surprise you.

I went to film school for editing and filming but we had the opportunity to join a one-week long acting course. They encouraged us to take it, because if we wanted to be a director one day, it'll be good to know how it feels to be in front of the camera, so we can give actors the right cues. Even though I was very uncomfortable by the thought of being filmed and having to act, this was enough motivation for me to give it a try.

That acting course I took over 10 years ago was the best thing I ever invested in. It helped with public speaking, giving less of a shit of how I might come across on camera (although I still struggle with that) and most importantly: understanding other people.

Invest in your education and personal growth

I wish I would've had a different attitude towards investing money in growth and education sooner. I would be further ahead in my career if I did. I now pay for a coach and they're not cheap but if it helps to shift my mindset and self perspective to feel worthy of increasing my rates and working on my goals, then it's worth the money in the long run.

3. Remember your privilege

If you're reading this article, you're probably quite privileged. You might have had parents that invested in your education and helped you pay for your first laptop or university.

I had the privilege that my parents saved money for me during my teenage years. It was actually some kind of life insurance but paid out in your early twenties. My dad said it was a fund just in case I was going to get married.

Thank God I didn't (not to shame anyone who did, but it's not something that would've made me happy). Instead, I was planning to use that money to study abroad. I asked my dad how he'd feel if I were to spend the money that he saved for over 20 years in just one year abroad. The tuition fee for that university was quite a big chunk of the savings and for once I didn't want to have 2–3 part time jobs. I just wanted to concentrate on my studies, so the remaining money of the savings budget would be spent on rent and food. He just said "I'm so glad you decide to spend it on your education" and with that peace of mind, I moved to wonderful Stoke-on-Trent and started my life abroad.

Be grateful for the support you have and the head start

If I wouldn't have gone to university and gotten that education, I wouldn't be where I am now. But of course you don't have to spend that much money on university. Looking back at it, I would've done one UX bootcamp, struggled a few months to get a junior role and would've likely also gotten to where I am today. But I didn't even know back then what UX was and how to acquire the skills.

4. Know your value

Know how much to charge for your services. No matter if you're employed or a freelancer. Find out how much other people earn/charge for the same services you provide. There's plenty of platforms like glassdoor which shows you the average salary or day rates in your field.

I recently started a new freelance contract. They have sent me some documentation to review on the first day. I'm not sure if they were meant to share everything with me, but one of the documents contained a file which showed what the previous UX Designer charged. They earned almost twice of what I was charging. And they handed over their designs in power point. Not saying that they aren't worth their money, they were very specialised and niched down. But if I had known before, I would've asked for a higher day rate.

Of course, it's difficult to find the sweet spot, especially at the beginning. Figure out your rate and know your value.

5. Always negotiate

If you're negotiating your salary and they have a set budget, try to negotiate for extra days of annual leave. Or you can get other benefits like have them pay for your transportation, ask if you get a budget for training. Maybe you can get equity. See what's possible.

It's not common, but some companies are very transparent and have income brackets. Those that don't might not pay equally. You don't want your male counterpart to earn more than you, just because he negotiated a higher salary when he joined and you didn't.

This one is not just important for work. See if you can negotiate with accommodations like booking.com. Reach out to hotels directly and see if you can get a discount, because booking.com takes an extra share of what you pay the hotel. So you can pay less and they can get more than what they'd get through booking, win-win!

6. Be aware of the tax you have to pay

I usually transfer 20% of all the income I make through my company into an easy access account which pays interest. I know I won't have to pay all of that because of expenses, which will reduce the amount of taxes I have to pay. But putting all of that aside gives me reassurance that I don't have to worry about the tax man. And everything that's left is a nice bonus. It's a good feeling when you know you can definitely cover the tax bill.

They'll increase the taxes in the UK soon, so from this year, I'll increase that share to 25%. Stings a little, but that's how it is when a country has to find ways to make up for the whole in the pocket after paying out a lot of furlough money. Overall, I'm not against paying taxes, I see it as a luxury. The more I earn, the more taxes I pay, but as long as that money gets to support people, I'm fine with that.

7. Have a backup you can fall on

Emergency fund, fuck off fund, call it however you want to call it. But make sure you have some savings in case things go downhill. I think we all learned since covid that things can change very unexpectedly and very quickly. So be prepared.

Look at how much money you'd need to live somewhat comfortably for three months. This should cover rent, groceries, insurances etc. Try to put that aside into an easy access account. Once you've accumulated that, you can invest the remaining money you have in longer term investments. But make sure you have that backup.

Some people recommend having 6 months of savings. I have 3 months in my bank account that accumulates interest and another 95 days access account with a fixed interest rate. So if I notice that my 3 months of instant access might not be enough, I can give notice so I can access my 95 day access in 3 months from then.

Luckily, I didn't need it so far, but it's very comforting to know that I can technically live 6+ months from just my savings and won't have to worry.

Since freelancing, I managed to build quite a good back up fund. Money just came to me. Which is also why I keep telling everyone to go freelance.

8. Let your money work for you

Don't just leave your money in a bank account. Make sure you put it somewhere where you earn interest. Especially now that interest rates have gone up - thanks recession, at least you're good for something. Invest in fixed savings accounts if you're very risk averse. If you can live with your money not being accessible instantly, put it into a longer term fixed savings account. Or better, put your money in a stocks and shares ISA. If you don't invest in stocks (and now is probably a good time to invest, because the economy isn't doing so well, but again, I'm not a financial advisor, so take that info with a grain of salt) you will end up having less spending power. Because your money will lose value thanks to inflation.

9. Yes, you can get free money!

I have the luxury problem of now being VAT registered, which means I now have to charge VAT on my invoices. That VAT technically has to go straight to HMRC, which means it's not my money, i'm just collecting money from others for the government. BUT in my first VAT year I can use a flat rate to pay and I'll get a 1% discount. Meaning that of the 20% VAT that I collect, I only give 19% to the government, so the 1% is something I can keep in my Limited company.

That's what you call efficient tax planning. It's all legal. At least that's what my accountant told me.

Another way of free money is putting it somewhere where you get interest. Please do, otherwise your money will become less valuable over time. Again, inflation.

10. Keep track of your money

Make sure you know how much money you have and how much you will need to spend in the near future. Put it in a spreadsheet, yes I know, those are fun. Maybe try using notion instead of excel to make it more interesting. I keep track of my personal accounts (I got accounts with some challenger banks, a traditional bank and a credit card with cashback for each purchase as well as an Euro account) and my company accounts for my freelance work (Paypal, Starling, Aldermore).

The money I earn isn't technically mine, it's my company's money. Working with a limited company means I can access that money. But additionally to the 25% tax I have to pay on the income of my company, I have to pay personal tax on the money I draw from it. So it's tricky to know how much money I actually have access to. This is why I have a spreadsheet to keep track and review each month to see if I spent too much, how much I can put into savings or investments and if I can cover any upcoming payments.

11. Have financial goals

Especially as a freelancer, it's important to have goals. This includes financial goals. Make sure you put money in a pension. You won't believe the amount of other freelancers I meet who tell me they have no plan for the future. Please don't be one of them.

If you think the government will make sure you get a good enough pension, they won't. Unless maybe you're in Norway. Pensions nowadays are calculated with the idea that you'll have your own property that is paid off and won't have to pay rent. We're not in the generation our parents and grandparents were. So unless we inherit something (hello inheritance tax) this might not be the case for you. So make sure you know how much you'll need and see if you will get that. There are plenty of pension calculators out there.

Chances are, you won't get a good enough pension through state pension alone. If you're employed, ask your employer to increase his contribution or if you can increase yours. It's also very tax efficient. If you're a freelancer, I personally find Penfold quite good. It's specifically targeted at freelancers and therefore, unlike other private pensions, you can add as much or as little as I want. You don't have to pay the same amount each month.

Of course, only invest money where you feel like it's good to be stored, be aware of compound interest, so the earlier you invest, the better.

12. Balance your income

I've had quite a consistent stream of income since freelancing. Maybe I'm just one of the lucky ones. But even though money keeps coming in, the amount I get still fluctuates. For example, December is usually a bad month for me. Since I'm being paid on a day rate, I won't be hired over the Christmas period, which means that I will only earn half as much compared to the rest of the year.

What I do is I calculate a certain amount as my 'average income'. If I earn above that, I put that money aside, into fixed savings or investments. If I earn below it or have clients who tend to pay late, I can draw from those buckets in the meantime. This way I don't have to worry if I can pay my upcoming expenses.

13. Money is power

You can use your money as leverage. Would you rather invest in an oil fund or in renewable energy? Do you want to buy from brands that exploit their workers or buy from an independent local store where the owner is doing a little dance after each purchase because you help them make their dream come true?

Once you understand how money works and how to make it work for you, it will keep growing.

14. Get expert advice

I'm not a financial advisor. But I've done my own reasearch. We're lucky to live in the times of the internet where we can quickly google something. But also be careful who's advice you take on. Anyone can put information online (just look at me writing this article).

But there's another big thing financial experts won't do: they won't be as keen to grow your money as much as you are. They will give you recommendations based on where they earn the best commissions, not on what's actually best for you. So do your own research, compare offers, negotiate and most importantly: get started on sorting out your finances.

Here's my recommendations for you

Again, I'm not a financial adviser, this is all just from personal experience and research. But here are the basic things I think anyone should do:

• Invest in a pension
• Build a fuck off fund or back up
• Have all the money you don't need accessible in the next 3–6 months into longer term investments
• If you're in the UK open a LISA and ISA (I have mine with moneybox)
• Educate yourself on money. I cannot emphasise how much Money: A user's guide by Laura Whatley has helped me. It doesn't just explain money and how to make it work for you but also the relationship you have with money

One thing I never understood was why we weren't taught about money at school. I wish little 10yo me would have known about long term investments and just put her pocket money into a stocks and shares account. But better late than never.

Money is just money. That's easy to say when you have it, but if you don't it's difficult to get hold of it. But once you leave your scarcity mindset (see learning #1) it'll be easier to get money coming in. It's like a switch. Once you don't occupy your mind with "I don't have" but with "I will get" things will happen for you.

Useful links

One book I cannot recommend enough is Money: A user's guide by Laura Whatley. It has taught me so much about money and how you can make it work for you.

If you're based in the UK, I recommend following these accounts @rainchq, @vestpod and @elent_uk

That's what I've learned so far. I also know there's tons more. If you want to learn more about freelancing, feel free to sign up to my newsletter.