When you’re self-employed, there are so many benefits like flexible working hours and independence. However, it also means you’re the one who needs to manage your own finances and pay your own taxes. When you’re self-employed it’s inevitable that at some point your income will be irregular, so you need to work on how to manage your finances properly. Here, we’ve put together some top tips for managing finances while self-employed.
Because of the irregular income, it’s important to make a list of all your bills and split them into priority and non-priority debts. Priority debts include things like mortgage payments, income tax, council tax, energy bills etc. and are the ones you should pay off first. The non-priority bills include direct lender payday loans, credit card debt, overdrafts, personal loans etc. If you can afford to pay off these, start with the highest interest rate first. You can find independent debt advice to help to prioritize payments online and local to you if you’re struggling to know what to prioritize.
Make a Budget
Being self-employed comes with an irregular income, which you may find harder to budget with. However, having an irregular income is all the more reason to set yourself budgets as it gives you a clear picture of where your money goes and where any opportunities are that you could cut back and save money. It’ll also help you to see whether you have enough money to cover all expenses.
For example, if you are a childminder, you need to budget to cover expenses like food for the children, outings, toys, craft materials, and travel costs. There are many tools online where you can get help budgeting and what’s left after paying major bills. You can look through your last 3 years of income and calculate your average income over that period. Divide that by 12 and use this figure to create your current monthly budget. If this amount doesn’t cover everything, you need to find ways to cut back or supplement spending.
Pay Yourself a Salary
By paying yourself a set salary, you can control your finances by realizing that all the money that comes in isn’t necessarily yours. If you’re having a good month, leave the excess in a separate account to build up for leaner looking months as an emergency fund. This account should ideally have enough in to cover basic expenses for up to six months as a last resort.
Start Planning for Retirement Early
The earlier you start saving into your pension, the better. It gives you more time to contribute to your fund before retirement and more time to benefit from tax relief. Although it can be a difficult habit to develop when you’re self-employed, it’s important to start looking towards the future as early as possible. The State Pension is unlikely to provide you with anything like your current standard of living, so contributing yourself can help set you up for later in life.