| Real Life Strategies for Building Wealth

money management

In today’s tough economy, steady jobs can be hard to find. Depending on your line of work, there may be freelancing or contracting opportunities you can take advantage of, provided you’re willing to put in the effort. Unfortunately, this type of work doesn’t always provide a steady income and you will have to be extra good at managing your finances when money is in short supply.

Here are some money management tips for freelancers and contractors:

Open a Business Banking Account

If you’re operating a small company where you’re the only employee, it is possible to use your personal account for business. Unfortunately, it can get messy and confusing over time. The more transactions you have coming and going, the harder it is to keep a budget that covers everything, while leaving room for taxes and other business expenses.

Opening a separate account for business allows you to simplify this process and transfer money to your personal account as if you were paying another employee. If there’s a “hole” somewhere that your money is mysteriously disappearing into, you’ll be able to determine whether it’s due to business or personal expenses. It will also be easier to see how profitable your business activities are.


Forecasting involves looking ahead to project future income and expenses. Freelancing is not the most stable way to earn a living and you may face changes during the coming year that greatly affect your income. In order to manage your expenses, you will need a plan. That plan has to be based on what you realistically expect to earn and spend.

One way to accomplish this is to come up with an average for the year and divide it into 12 months. You can either work off that exact average or come up with an estimate of the worst possible scenario, based on the lowest monthly income you’ve received during previous years. Combine this with the most you’ve ever had to spend in a given month and it’s safe to say you’ll probably beat your own projections more often than not.

Keep an Emergency Fund

Always keep a separate account with an emergency fund you can draw from when there are gaps between your contracts. If possible, set aside enough to cover at least 6 to 8 months worth of expenses. The goal is to avoid using this money unless it’s really necessary, but just knowing it’s there offers a sense of security that’s hard to beat.

You may find that it’s easier to turn down work from clients you’re not thrilled about working for, as well. Without an emergency fund, you’re likely to suffer the additional stress of tripping over yourself to please difficult clients and those who never pay their invoices on time. Knowing there’s money to pay the bills gives you a chance to set some time aside for trips, events and additional training.

Get Paid Upfront 

One of the best ways to ensure you get everything that’s coming to you on time is to get paid upfront before doing any work. If you can’t stick to this practice, you may find yourself playing the role of debt collector every time someone defaults on an invoice.

That’s a bad position to be in, because the client who isn’t paying will almost always have some excuse why they can’t pay just yet, whether or not they intend to pay you at all. Another thing to consider is that if you’re wasting time chasing invoices, you’re not spending it where you can do the most good for your clients and your business.

Use an Umbrella Company

Sometimes the most difficult part of freelancing or contracting is finding time to handle the administrative part of the business while still delivering quality work. An umbrella company manages these tasks for you, handling your paperwork, payments and taxes as though they were your employer.

Technically, they are considered your employer once you agree to work under them, but your freedom to act independently remains the same. What does change is that you’re no longer paid directly by the client, but rather through the umbrella company, who subtracts all taxes and fees before paying you. This frees up your time to concentrate on providing the best possible service for your clients. Visit umbrellacompany.uk.com for more information on umbrella companies.

Freelancing and contracting give you the freedom to set your own hours and pick your own clients. For those who choose this type of career, money management is often the most difficult hurdle they have to deal with. Implementing the tips listed above can help you get a better handle on your finances, so you can concentrate more on the services you provide.

Editor’s note: Harriot Brookes is a writer based in the UK. She is featured on a number of blogs which help contractors and freelancers make better decisions running their business.

photo credit: Don’t sell the dreams you should be keeping. via photopin (license)