One of the most common complaints I hear is how most mainstream personal finance guidance, how many budgeting spreadsheets, saving plans and financial products, are geared towards people with a steady, salaried income from an employed role. And yet, there are more than five million self-employed people in the UK – so how do you manage your money when you work for yourself? Of course, there’s not just one brand of self-employment, either. You can operate as either a sole trader or a limited company, and there are pros and cons to both. As a general rule, most accountants will advise that it’s more tax efficient to operate as a limited company once you are earning over £30k per year, and certainly most would suggest it before you hit the VAT liability threshold of £85k. But however you operate, here are a few ways to make managing your money as a free agent easier and less stressful: Keep your business and personal finances separate, in every sense of the word This means keeping your money completely separate, both in terms of your mindset and the practicalities. Mindset is important here, because when you’re employed, the financial reward for your labour is set when you accept a job offer, or when negotiating at a salary review, but when you’re freelance, you could be setting or negotiating rates more or less constantly. This means that you have a closer connection between your time and your money, and it’s easy to start seeing every moment of your time for its monetary value. This can make it really difficult to take any time off, and can mean that any questioning or even rejection of your rates can affect your feeling of self-worth, perhaps leading you to reduce your rates or offer your time for less than it’s worth. Having a clear idea of what your time is worth within your business, but making sure that your non-work time is not for sale can help you to really create a boundary between work and your personal life which will make both negotiating and taking time off easier. In a practical sense, having a separate bank account for your business finances – i.e. for invoices to be paid in and out of – is something that you’ll probably benefit from doing as soon as possibly. This makes calculating your tax and business expenses easier, enables you to pay yourself regular amounts if you want to, and will essentially save you a lot of time that you could be spending earning or resting. Save your tax right away Again, when you’re employed, you don’t even have to think about tax. It’s whisked away before you even have a chance to look at it, so you don’t miss it (well, unless you spend too long looking at your pay slip) and can’t spend it. When you’re self-employed, you’re liable for your own tax, and you have to actually have it in your account before giving it to […]
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