Could having the self-employed mindset or thinking about your finances like a business owner leave you better off?
Whether you’re employed, going it alone, or just worry about barrelling through your pay packet each month, the right approach can help you make the most of your income.
Here’s how to re-think your money plan:
- Every time you get paid, skim a bit off and stick it in a savings account before touching the rest.
This move ensures you’re not left scrambling for cash to pay your tax and National Insurance bills, so aim to match your tax rate (i.e., at least 20% if you’re a basic rate tax payer). If you’re not self-employed, it’s still a brilliant way to build up a savings pot for emergencies or unexpected costs. Either way, keep the cash in a decent savings account to brew interest until you need it.
- Pay yourself first.
Pick a percentage of your monthly salary or pooled monthly income after tax – 5% to 10% is a good start – and stow it in another savings account. Treat it as back-up for any time you’re not earning (illness, unemployment, redundancy, or time off) and don’t withdraw it until you really, really need it. Make it a goal to have at least 6 months’ worth of income set aside and work up to it!
- Whatever cash you have left after steps 1 and 2 is what you have to live on for the month: it’s up to you to make it last!
Shop around for better deals on bills, ditch unnecessary money suckers, and recoup some of your spending through cash back and loyalty/reward points. Having self-employed mindset (even if you aren’t) sharpens your aptitude for accounting for every single penny – and that’s a good skill to have.
- If thrift is your Kryptonite, consider a prepaid debit card.
These work like regular bank cards with one crucial difference: you have to load them up with cash before you can spend on them. Once you’ve paid your bills, rent/mortgage and other essential costs, move the rest to your pre-paid card and use it for all your other spending – but no topping up until your next monthly pay date!
- Spend an hour brushing up on your tax affairs.
If you’re self-employed, you’ll pay tax on your profits (income – after running costs – above the personal allowance), so don’t forget to check and log any allowable expenses: it means less tax to pay. Legit expenses include computer kit, stationery, advertising, some travel and home-use costs, and even your internet and phone use. If you’re employed, it’s also worth looking into tax allowances, which shield some of your income from the tax office: we’re talking savings allowances, being married, or earning money from renting out a spare room for starters.
- Set-up a spreadsheet to keep an eye on the sums.
As a basic you’ll want to list each payment you receive, as well as any expenses you plan on claiming against tax. If you log fixed costs (bills, rent, insurance or whatever), you can even use your spreadsheet to show how much you need to bring in each month – and whether you’re on track. Advance move: use formulas for a real-time view of how much you owe in tax and NI, and check you’ve got enough set aside. Not a data nerd? There are loads of accounting software / apps out there that can do the number crunching for you.
- Performance review. Are you earning enough, do you have enough clients, and do you enjoy what you do?
What could you tweak if you’re not where you want to be? Whether you’re self-employed or not, you don’t have to wait for training opportunities: see what’s happening in your industry and book events that will enrich what you have to offer and keep your passion pumped! You don’t always have to cough up extra cash for learning opps, either – get online, learn a new skill, diversify, network and get yourself out there!
Guest blog written by Ruth Bushi, an editor at Save the Student. Featuring the kind of straight-talking advice you won’t get at school, the site has everything you need to know about managing money without the migraines: student finance explained, insider info on careers, plus ways to save and scrimp without the stress.