Pay yourself a salary when you are a freelancer

Working as a freelancer certainly requires a lot of time and effort. First of all, you should familiarise yourself with some tricks of the trade to help find new leads and attracting clients. After getting to grips with some of the basics, it’s time to name your price.

Any freelancer would tell you that determining how much to charge a client is no easy task, especially because projects differ from client to client. Furthermore, have you ever thought about how best to manage your freelance income?

Let’s take a look at how to charge a client and what to do with your finances.

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How to decide what to charge?

In order to pay yourself a salary as a freelancer, you need to be making some money. Deciding on your rates can be really tough. Many freelancers experience self-doubt, which may lead to you devaluing your work, charging far less than you should.

Calculating the price of a project should begin with the following points:

location – the living cost of where you live
the size of the client’s business
the length of time you think a project may take
your own level of experience and education
travel cost – if any

If you could use a little more guidance, ask the client. It’s possible to sneak a ballpark budget out of a client before you suggest a final figure to them.

What should you pay yourself?

You’ve set your rates and you’re making money. What’s next?

It’s always a good idea to maintain two distinct bank accounts – your business account and your personal account. It’s then really easy (and very useful) to keep a spending diary of both business and personal costs per week or per month.

Business costs might include a software subscription, a co-working space fee, tax. Not to mention putting aside a small percentage of your wage for the quiet times when jobs aren’t coming through.

Personal costs might include rent or mortgage payments, utility bills, groceries and general day-to-day living.

Now that you have a clear view of your finances, you need to take your monthly freelance income (on average) and deduct monthly business costs.

The figure you’re left with will hopefully be enough to cover your personal outgoings. If so, the cost of your personal outgoings (with maybe a little extra for non-essentials like socialising etc.) will be how much you pay yourself.

If the figure doesn’t cover your personal outgoings, you need to rein in the spending somewhere. Or find a way to make some extra cash.

What do you do with the surplus?

You might find yourself in the very enviable position of having some surplus cash left over at the end of each month, once business and personal expenses have been accounted for.

This extra income can help you live more comfortably. However, if you’re thinking with your business brain and know the importance of financial planning for freelancers, you’ll probably want to do one of two things.

Invest back into the business
Cash reserves can be used for training and development, a marketing campaign or a software update. You could buy better equipment or build a new website.

Regardless of what you will spend your money on, investing back into your freelance enterprise will help to move it forward, which means you’ll be able to reach new clients and raise the price of your service in the future. This, in turn, means greater income, greater profits and a higher salary.

Invest elsewhere
A second option is to look for investment opportunities elsewhere. As long as you’re giving your business the funds it needs to thrive, your freelance earnings could be doing much more than gaining nominal interest in a savings account.

The stock exchange and real estate are often the favoured places for people looking to invest. If you’re new to the game, do some research or check out some investing courses first. With the right knowledge and a bit of confidence, your freelance earnings could end up working for you.

About the author

Sienna Walker is a freelance writer and an ex-tutor who enjoys all things connected with self-growth and running a successful business. If you enjoy her writing, feel free to find her at @SiennaWalkerS and say ‘hello’.