5 financial aspects of life freelancers don’t consider

Being a freelancer can mean having to give up a few perks that come with having a contracted position. And this can affect your personal finances.

There are a number of benefits to being a freelancer – from choosing when you work to not having to tackle a daily commute. But there are also a few downsides – one of which is how it affects your finances.And it’s not just the irregular income and doing your own taxes that you need to consider. Freelancing can also impact your personal finances in a number of ways…

1. Applying for mortgages
With stricter rules coming into play when applying for a mortgage, it’s made life a lot harder for freelancers looking to buy a home. Finances are now gone over with a fine tooth comb. And if you can’t prove a regular past and future income, you might be refused a mortgage.

What you need to do
The key is to have good accounts. You’ll need at least 2 years of full accounts when applying. It’s worth bringing in an accountant beforehand to go over them and speaking to a professional mortgage advisor to see whether you will qualify. Look for your SA302 form – this gives details on all of your earnings declared to HMRC over the last 3 years.

2. Sorting car insurance
Remember when you filled in your car insurance applications? There was a question that asked what you’d be using your car for – business or pleasure. If you ticked pleasure then you might need to get a new quote.

Your standard motor policy will usually only cover the vehicle for social, domestic and pleasure use. Commuting is usually fine – but if you start using your car for transporting goods, driving clients around or visiting clients in their home, you might need to look again.

What you need to do
Speak with your insurance company and explain to them exactly what you’d be using your car for. If you’re not using it that much for work, you might not need to change it.

3. Managing your credit rating
As with mortgages, the variable income you’ll get as a freelancer can impact your credit rating. This could affect your ability to apply for a range of products from credit cards to mobile phone contracts. Even buying large items on credit like sofas or washing machines could become an issue.

It can become a bit of a vicious circle, as if you’re unable to get credit it becomes harder to improve your credit rating.

What you need to do
Go online and check your credit score. If it’s poor, taking the following steps can help. First, make sure you’re registered both on the electoral role and for utility bills.

Next, get yourself a credit card or store card. Usually it’s the higher interest rate ones that will accept someone with a poor credit history. Only use it sparingly and pay off right away when you do. These should help build up a credit profile and if you manage to not miss any payments and manage them well your score will start to improve.

4. Looking for pensions
After the introduction of the auto-enrolment pension, millions of people started to automatically receive pension contributions from their employer. But if you’re a freelancer you’ll miss out on this – which can mean missing out on a considerable boost to your pension.

What you need to do
Simply put, you need to have your own private pension and put a decent chunk into it regularly. Research your options and speak to advisors about which pension is best for you. The earlier you set it up the better.

5. Missing out on benefits
Workplace benefits and perks can range from the small – like free coffee and tea – to the large like savings on various forms of commuting.

Add to that things like health insurance, on-site gyms and free health checks and you’ll start to realise that you get quite a lot of free stuff through work. And as a freelancers these all need paying for.

What you need to do
Make a budget for everyday items like coffee, tea etc. If you’re entertaining clients you could claim the VAT back on them. For other items like health care and transport, look into ways you can get subsidised version whether that’s registering for NHS dentists, using dental schools, or applying for cycling to work schemes.


Posted by The Secret Businessman