When you’re self-employed and struggling to make ends meet, saving money can seem overwhelming. But making small changes can benefit your business in the long run and save you more than a few pennies. Here are five ways you can get started.
1. Know what expenses you can claim for and keep your receipts
The tax return deadline for the last tax year (6 April 2020 – 5 April 2021) isn’t until January 2022. Still, it’s useful to know in advance what you can claim for so that you can keep a list of all your expenses and receipts.
An example of a claimable expense is that you can claim a proportion of your energy bills back for working from home. You can also claim for your phone bill as long as it’s essential to your business. Chances are it will be.
Other allowable expenses include:
- Office supplies
- Rent (for business purposes only)
- Professional indemnity insurance
- Software licenses
- Staff costs
- Professional memberships
2. Plan your finances
Set yourself some guidelines on how much you’re going to spend on certain things. Do this in the same way that you budget in your personal life.
If you have an irregular income with peaks and dips, you could express the budget as a percentage. This way, you can be sure you don’t overspend. Some people find that it helps to work backward by asking themselves ‘what do I need to earn (and save) to afford the lifestyle I want?’ To do this:
- Write down your estimated outgoings. Multiply by 52 if it’s a weekly expense, or by 12 if it’s an annual expense. Write this figure in the ‘Annual total’ column.
- Add the annual totals to figure out yearly outgoings. Let’s say it adds up to £25,000.
- Work out how many days of the year you want to work. Take off any bank holidays (8), planned holidays (2), and sick days (5). Consider non-billable time too. If you spend 60% of your time doing client work, that’s 123 days in a year.
- Take the £25,000 figure and calculate the income tax and national insurance you will owe. HMRC has a handy tax calculator you can use. Based on this amount, you’d owe £4,300 in tax, so your total gross earnings would need to be £29,300.
- Divide £29,300 by 123 to get your average day rate (tax inclusive). This comes in at £240, or about £30 per hour if you’re working 7.5 hours a day.
|Estimated outgoings||Per week x 52||Per month x 12||Annual total|
If you’re thinking “I earn nowhere near that”, don’t panic! This is your ideal scenario, and it’s something to work towards. You can also do a worst-case scenario projection where you can strip back the holidays or factor in working overtime.
3. Make savings where you can
Sometimes it can be difficult to see what you’re wasting money on unless you conduct an audit.
For example, let’s say you buy ink every month. If you wait until the last minute to get a new cartridge, you could be paying more on delivery. So, an easy saving could be to buy in bulk instead.
Not all expenses are physical, though. Most self-employed people take out professional memberships or attend courses and conferences. It’s a good idea to assess whether you got what you wanted from them, be it contacts or skills. If you haven’t, don’t pay for it again! Instead, try to find something else you could invest the money on or save it.
4. Consider raising your rates or outsourcing work
If after auditing your expenditure you find that you still can’t save much, you may be undercharging. Some other signs of this may be feeling like you’re always rushed, working overtime, or struggling to break even. And while increasing your rates may cause demand for your services to go down a little, most of your clients will likely pay a little bit more. So, you get paid more and work fewer hours. It’s a no-brainer.
Another option is to hire a virtual assistant and outsource some of your admin tasks. This could save you money in the long run and will free you up for the tasks that your clients pay you well to do.
5. Use cheaper payment methods
This is often taken as a given, but the payment method you use can have a substantial impact on your take-home pay. For example, if you use payment wallets like PayPal, you’ll know that they take a hefty transaction fee. And even if you get paid by normal bank transfer, you could still be losing money from late payments.
So, what can you do with the cash you save?
If you’re stuck for ideas, why not:
- create a contingency fund and stick the money in a flexible ISA? That way you don’t need to panic so much when business is quiet and you can still access the funds when needed.
- invest it back into your business? Perhaps you’ve been hoping to branch out into another sector but need to invest in some training or specific software. Now’s your chance!
- pay yourself a bonus? Where’s the fun in working hard and being your own boss if you don’t get to reap the benefits every now and then?
We hope you found this useful!