How (and why) to keep good accounts as a freelancer

Published by nedmortimer on

If you want to become a millionaire, actually knowing how much money you have is a pretty important step in that journey. Just think about Harry Potter. Before Hagrid took him to Gringotts and showed him the piles of galleons, sickles and knuts, he had no idea where he was or what he was doing. Granted, he was only eleven years old, but we can’t deny a big jump in his productivity from the moment he got his finances under control.

Joking aside, there are four big reasons why you should keep clear, up-to-date accounts as a freelancer.

“Keeping accounts” doesn’t mean knowing what your monthly income is and making sure you don’t spend too much before your next paycheck. This is ‘consumerist thinking’, spending what money you have in the short term without thinking of the long term. You want to think like an entrepreneur – making your money work as hard as possible for you.  

REASON 1 – CLARITY OF MIND

Being on top of your finances is not just an economical matter – it’s a matter of mental and emotional wellbeing.

Having clear, predictable finances is a great way of decluttering your life – just like having a clean kitchen, or a tidy bedroom, or a well-ordered email inbox. And a problem is far less stressful when you understand it; you probably feel extra stressed about your finances because you aren’t really sure what you have and don’t have.

REASON 2 – YOU CAN FIND WAYS TO SAVE MONEY 

On a more practical level, keeping clear accounts allows you to identify ways of saving money. We will drill into these in more detail later on, but for now, examples could include:

1) Setting a grocery budget for the week

2) Buying travelcards to save on regular travel

3) Bringing your household bills down by changing provider

REASON 3 – YOU CAN SET ASIDE MONEY FOR INVESTMENT

Wouldn’t you love LOVE a bit of free money? For doing nothing?

Well, if you know how much money you earn and spend each money, you can set a certain amount aside in an investment fund and make money in the background. It’s impossible to do this without a clear picture of your finances.

REASON 4 – IT’S EASIER TO FILE YOUR TAX RETURN 

Having clear finances will make it infinitely quicker, easier and less stressful to file a tax return – much better than spending hours on the 30th January in a blustery panic trying to find receipts (or wasting money on an accountant to do it for you – as you’ll see in the rest of the article, keeping clear accounts is much easier than you think).

So now we’ve tackled the WHY, let’s tackle the HOW. Here is a step-by-step guide for creating and managing your personal accounts.

[WARNING: this guide requires a minimal knowledge of how to use Excel (or other spreadsheet programme) – if you don’t have this already, read this guide, it will change your life! Excel is amazing if you give it a chance!]  

Before we start, just a quick message about cash.

Cash is the enemy of creating these accounts, because you don’t have a clear record of that transaction/what it was for/how much it cost etc.

Avoid using cash unless you ABSOLUTELY HAVE TO. Just use your card and every transaction will show up on your accounts.

STEP 1 – DOWNLOAD YOUR BANK STATEMENTS AS A CSV FILE

If you don’t have internet banking (e.g. if you are genuinely a wizard/witch and bank with Gringotts Bank), then this might not work for you.

But any major banking provider will have a function whereby you can access your accounts online and download them as a CSV file.

CSV stands for “comma separated values” and is just a data format you can use in Excel or other spreadsheet programmes.

Download the last 6 months of transactions and open it up in Excel (or whatever programme you’re using).

You should know see a long list of transactions, where each transaction is a single row, including:

1) the date of the transaction

2) the amount of the transaction

3) a description for the transaction

STEP 2 – ADD A COLUMN CALLED ‘MAIN BUDGET’

Next, to the right of you list of transactions, add a column called “Main Budget”.

For each transaction, you will need to specify the Main Budget it falls into. These are your options:

  1. Income
  2. Accommodation/Regular Bills
  3. Travel
  4. Groceries
  5. Eating/Drinking Out
  6. Entertainment
  7. Business Spend
  8. Other
  9. Cash withdrawal

STEP 3 – ADD SUB-BUDGETS

Each of these Main Budgets will also be broken down into sub-budgets, looking like this:

  1. Income
    1. [add income stream 1]
    2. [add income stream 2]
    3. [add income stream 3]
    4. etc
  2. Accommodation/Bills
    1. Rent
    2. Household Bills
    3. Council Tax
    4. Phone Bill
    5. [Add any other regular bills you pay each month] 
  3. Travel
    1. Underground
    2. Trains
    3. Taxis
    4. Petrol money
    5. Other car expenses
    6. Flights
  4. Groceries
  5. Eating/Drinking Out
    1. Restaurant
    2. Drinks
  6. Entertainment
    1. Sports/activities
    2. Tickets for events
    3. Books
    4. Netflix (or whatever other subscriptions you have)
    5. Spotify (or whatever other subscriptions you have)
    6. etc
  7. Business Spend
    1. Website hosting costs
    2. Equipment
    3. etc
  8. Other
    1. Lending money to friends
    2. One-off costs when something goes wrong
    3. Fines 
    4. [Add anything else that doesn’t fit into the other Main Budgets]
  9. Cash withdrawal

For each transaction you’ll need to add the sub-budget too.

MAKE SURE you follow exactly the same format for each thing. E.g. if you have 3 transactions for taxis that you took, make sure they all have “Taxi” written the same way in the Sub-Budget column – otherwise it will mess things up later on…

STEP 4 – ADD A ‘NOTES’ COLUMN

A notes column is super important so you can write quickly exactly what each transaction was for.

This will be difficult for older transactions – you might not remember what that Costa Coffee was for etc – but once you start doing this each week you’ll remember and be able to write things like “Coffee with Sophie after climbing”, or whatever.

STEP 5 – ADD A ‘TAX DEDUCTIBLE’ COLUMN

This is the column that will make your tax return WAY easier to file. You will be able to use pivot tables (here is the excel guide) to calculate very quickly how much you’ve spent on tax deductible things.

For now, this will just be a case of adding “Yes” next to every transaction that is tax deductible. What those items are is a WHOLE other matter, not something we’re tackling here. For now, just make sure you have that column there.

STEP 6 – CREATE PIVOT TABLES

This is the fun, scary, enlightening part – you will create tables that tell you exactly how much you spend on everything.

Once you’ve filled out all the Main Budgets and Sub Budgets for every transaction, you can follow these short steps to create a pivot table:

1) Select the whole of the data

2) Convert it to a table

3) Select it all again

4) Turn it into a pivot table, in a new tab of the spreadsheet

5) Use the Pivot Table builder to select what data you want to show

(This is all part of a more technical Excel process which we tackle here.)

Now, you have a shiny new set of Accounts showing what you earned and spent over the last 6 months.

FINAL STEP 7 – UPDATE ONCE A WEEK

This is very important. Like all the good things in life, you should do your accounts regularly and often. Once a week is best – I like to update mine every Sunday.

Just download all transactions since your last download, paste them (the dates, the descriptions and the amounts) into your accounts underneath what’s already there, and fill in the rest of the columns!

Next, we will look into 5 things you can save money on as a freelancer

As always, thanks for reading and please leave a comment below!


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