As a self-employed worker, you work hard for your money. But it's just as important to spend it wisely. Here are some top tips for UK subcontractors to get the most value from your cashflow.
Create a Monthly Budget:
Starting with a budget is essential for managing your finances effectively. It involves tracking your income and expenses on a monthly basis. Categorize your expenses into "needs" and "wants" to identify areas where you can potentially reduce costs. The Money Advice Service provides free budget templates and tools to help you get started.
Invest in Your Pension:
As a self-employed individual, it's crucial to plan for your retirement. Consider investing in a personal pension, such as a Self-Invested Personal Pension (SIPP). The government offers tax relief on pension contributions, which effectively boosts your investment by 20% to 40% depending on your income tax bracket. Over time, this can significantly contribute to your retirement savings. If you need guidance, you can seek pension advice from organizations like Citizens Advice.
Be Cautious of Cashflow Constraints:
It's important to be mindful of your cashflow and avoid getting into situations that may strain it further. Be cautious when considering payday loans, high-interest credit cards, or contracts with costly van or tool providers. Calculate the actual costs and compare them with your monthly cashflow to ensure you can comfortably afford them. Instead of relying on such options, it's advisable to build emergency funds to handle unexpected expenses during periods of slow work.
Maximise Tax Savings:
Keep thorough records and receipts for all your business expenses. By maintaining good financial records, you can claim deductions during tax filing, which can significantly lower your tax bill each year. Items such as van costs, tool depreciation, and even expenses related to your home office may be eligible for tax deductions. Consider consulting a tax accountant who specializes in working with self-employed individuals (such as us) to ensure you're taking advantage of all available deductions.
Grow Your Savings:
Once your monthly bills are covered, it's wise to automate regular transfers into easy access savings accounts. This allows you to build up savings over time. Additionally, you can consider lower-risk investments such as NS&I Premium Bonds. These bonds offer a chance to win tax-free prizes each month while keeping your funds accessible. To explore different savings and investment options, you can visit websites like Monevator that provide ratings and recommendations.
Invest in Your Skills
Continuing to learn and develop new skills can benefit your career and earnings potential. Consider pursuing accredited training courses in areas relevant to your trade, such as project management, health and safety, or specialist skills. By expanding your skill set, you can take on more profitable jobs and potentially command higher rates. In some cases, your employer might even be willing to contribute to the cost of training if it helps advance your career.
Plan for Major Expenses:
While unexpected costs can arise, certain expenses can be anticipated and planned for. For example, you may need to purchase new tools or equipment, upgrade your van, or take on an apprentice. By saving ahead and spreading the cost over several months, you can minimize the impact on your cashflow when these expenses arise. If necessary, you can also explore 0% purchase credit cards, but it's crucial to carefully consider the terms and ensure you can repay the balance within the interest-free period.
By following these tips, you can make informed financial decisions and optimize your cashflow as a self-employed worker in the UK.