When it comes to cash, one of the most important lessons to learn is to keep your overheads down, which means taking better control of your spending. The following tips can help you stay in control of your money as your face the ups and downs that almost invariably accompany self-employment.
Managing your income – A huge difference between being employed and self-employed is that with the former you know what your income will be every month, while for most self-employed their income fluctuates from month to month, sometimes substantially. Many self-employed describe their businesses as going from feast to famine.
Clearly it makes sense to use your fruitful months to prepare for the times when business isn’t so good, and this applies especially if your business is seasonal. A good tip is to not be tempted to spend more when the cash is flowing freely; instead put some money away to tide you over when you hit a rough patch.
Avoiding unnecessary lifestyle expenditure – Apart from your business expenses there are things you need to pay, for instance your mortgage or rent, the usual bills, and for your food and your clothes, but just about everything else is optional.
All you really need do to save money is to consider cheaper alternatives. For instance, rather than drive walk, cycle or take public transport; rather that calling in the local coffee shop for a Skinny Latte take a vacuum flask; don’t buy bottled water, fill a bottle from the tap and take it with you; in fact, there are countless ways of saving a little money. Think before you spend is an excellent tip.
Keeping a financial diary – Most people really don’t know what their money goes on, and when they figure it out often they are horrified.
The only way to really keep a track on your spending is by writing it down, or at least keeping financial records electronically. You will need to do this for your business, so a good tip is to do it for your personal expenditure too. There are many apps around to help with this.
Avoiding unnecessary interest charges – Most businesses need to take on debt, and doing so often makes sound business sense. For instance, borrowing to fund inventory and grow the business; to finance an exciting business opportunity; to smooth out seasonal fluctuations.
But there are also things that are not worth borrowing money for. If you don’t need it and it isn’t going to grow your business, then a good tip is don’t take out a loan to buy it.
Paying your taxes – as a self-employed person you don’t pay income tax, but you are required to pay tax on any profits you make. Profit is simply the difference between income and business expenses, though you can claim capital allowances and use previous losses to reduce your tax bill. You will need to tell HMRC how much profit you made during the tax year, and pay the tax you owe by 31st January plus a payment on account by 31st July.
These tax bills can come as a huge shock, and if you don’t pay them on time you will be hit with penalties and interest charges. A good tip is to put a proportion of your income into a separate account and use that to pay your tax bill.
Combining these five good habits can set you along a long term path towards financial wellbeing but if you are in need of a steppingstone, a short term loan may be a solution to help you on your journey back into financial wellbeing.
This article has been brought to you by Uncle Buck Finance LLP.