As a self-employed individual, you benefit from a level of freedom that you may not experience from a traditional job. However, being your own boss can be a difficult task. Especially with the financial challenges that come a long the way. Here’s how you can thrive financially in the world of self-employment.
Retirement. don’t forget about it
While this may not be the most important thing on your list of financial challenges, retirement can’t be ignored. We understand that you may not always be able to put money aside for your later years but balance your priorities and make sensible decisions. Don’t forget, this doesn’t mean you can’t treat yourself to the things you enjoy. If you do better than average one month and have some extra cash, think about retirement – your future self will be grateful.
Budgeting as self-employed
Now, budgeting can be a lot trickier for the self-employed. It doesn’t happen like the people who work traditional jobs, they take home the same each month and know exactly how much they’ll have spare after paying the bills etc. Somebody who is self-employed won’t make the same amount of money each month, which makes budgeting a difficult task. Here are some tips that will help with budgeting.
- Separate your expenses - Draw a fine line between your personal and business expenses. This will make your life a whole lot easier, especially when it’s time to sorting out taxes.
- Set aside enough money for taxes - Paying taxes becomes your responsibility when self-employed. However, this can be time consuming. At HL&W, we advise our clients on their tax rate and determine how much you should put aside each month for taxes. Meaning you can get on with your day to day activities and focus on your business.
- Create a bare bones budget - In the early stages of life as self-employed, is can be daunting watching your money disappear into different places, like expenses, taxes, savings, etc. By creating a bare bones budget, you can determine the amount needed to pay the essential expenses in order to survive. This budget should be used in underperforming months when you really need it.
- Focus on percentages - Given the fact you won’t be taking home the same amount of money each month, it’s hard to stick to a set amount to put away for savings. It’s a lot easier to stick to a set percentage. Start with trying to put 10% of your overall earnings away, you’ll find yourself in a more comfortable position financially.
Protect yourself with insurance
Unlike most salaried professionals, self-employed people don’t receive the benefit of life and health insurance. While it can be natural to think “I’ll be fine, nothing will happen to me” you can never be too safe. At the very least, explore life and income protection insurance. Imagine if something does happen to you while you aren’t protected and as a result, can’t work. You’ll heavily regret not deciding to spend a little extra each month on insurance.
Stay away from personal credit cards
While it can be tempting to use your personal credit card for the reward points, keeping your business expenses separate is the best way to go. Not only will this make itemising your business deductions for tax purposes easier, you could be setting yourself up to ruin your personal credit history. If something happened to your business and you still had expenses to pay off on your personal credit card, you could find yourself in a sticky situation.
Enhance financial stability
Throughout the financial year, there may be some months where you’ll do a lot better than expected. If you have some even better months, don’t splash your cash on items you don’t necessarily need. Of course you can treat yourself, but remember to build up some financial stability.
When these months come around, take out what you need for emergencies, taxes and your salary, then put the rest aside. This will provide you with adequate financial stability.
Record your mileage
Driving to a client for a meeting? Or picking up supplies for your work? If you’re taking a trip related to your business, you may be able to claim some money back for fuel costs. HMRC’s mileage rates allow 45p per mile for the first 10,000 miles and 25p per mile thereafter. Other expenses like tolls and parking can be claimed for as well. If you’re going to take advantage of this, you should keep a log of your travels that includes destination, date and miles driven. Although this can seem time consuming, you’ll soon discover it’s worth doing.
Work with HL&W
At HL&W, we take the pressure away from you when it comes to worrying about the numbers. We understand you probably don’t want to be dealing with financial tasks, so we take care of them for you.
Our range of accounting services are highly beneficial to self-employed individuals looking to spend less time dealing with financial requirements and more time doing what they love.