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If you’re self-employed, there are many benefits, including flexibility and independence. However, you are also responsible for managing your own finances and protecting your income. It can be a daunting and stressful situation. However, with the help of the following tips, you will be well on your way to taking control of your money.
Create A Budget
Budgeting can be more difficult for the self-employed than for those who live with a steady wage. Nevertheless, keeping on top of monies coming in and going out is essential.
Creating a budget for your business expenses is particularly crucial. Make sure to include all your outgoings:
- cost of materials
- costs of running your business – IT, phone, travel, office costs
- professional advisor fees
- insurance (check out Lifesearch or rhinotradeinsurance.com if you are a tradesperson)
- don’t forget your wage1
Having clarity over these will give you a clear view on cash flow and give you ideas of where you could potentially save money.
Make Sure You Stay On Top Of Your NI and Tax
When you are self-employed it is necessary for you to tell HMRC and start paying tax and National Insurance on your income. It’s crucial to stay on top of all your records so you can calculate this correctly. If you keep a record of your income and expenditure on a monthly basis, it will save you the hassle of doing it yearly. Have a look at the .gov website for exactly what you need to do and when.
Prioritise Your Bills
When it comes to self-employment, you may find that some months you have better cashflow than others. One of the best ways you can tackle down months is to make lists of your bills and split them by priority.
Priority debts include any mortgage payments, council tax, income tax, and energy bills. These are all ones that you should pay off first. If you are working from home, you may see an increase in your utility bills just because you are home more often. If you find that you are struggling with any priority payments, Stepchange offers a free debt advice service which can be invaluable in these circumstances.
With other debts, if you can afford to pay more than the minimum amount, always target the highest interest rate first.
Pay Yourself
It can be easy to think that all the money coming in is all yours, however, paying yourself a monthly wage will naturally create more incentive to keep your finances in order.
Make sure you also put money to one side when you are doing this for your taxes. If you have a month where you bring in more money, leave it to one side and build up a pot for emergencies. You should ideally have a pot that is enough to cover 3-6 months of essential expenses. This safety net can bring huge peace of mind, especially when you are starting out and building your business.
These are just four of the tips that can help you when taking control of your finances as a self-employed person. Remember you need to take control of your finances both as a business and an individual.
Do you have any other tips that could help other self-employed workers? Please share them in the comments below.
