Never want another sleepless night worrying about how you are going to pay for the mortgage or rent? That emergency car repair bill? Your kids’ school fees? Your tax bill? There is a trick that freelancers can use every month to put their minds at ease. It’s a trick because it manipulates our spending and saving mindset to do magical things.
Freelancers often leave little time each week to take care of themselves or their personal finances. They are prioritising the needs and requirements of their clients. It’s only natural.
However, when they drop the ball on their personal finances, they are not doing anyone any favours. They work all day and then don’t sleep at night. A stressed-out and sleepless freelancer could then also become a stressed-out parent, spouse, business partner or friend. So, the sooner freelancers start to prioritise their financial fitness the better they will be.
So, how do they do it?
#1 tip to becoming a financially fit freelancer is…
🤑 Pay yourself first 🤑
What does that mean? It means you pay and silo your most important costs first before letting your hard-earned cash get eaten up by last-minute spending. These unplanned purchases: kids’ after school treats, your daily coffee habit, in-app purchases or that “one-off” mega Magestic Wine order add up and can put you in the red.
😊Standing orders: your new best friends
🏡 The I can’t live without you standing order
How do you do this exactly? You set up a standing order with your bank on a certain day each month (based on when you expect to get paid by your clients or agency) so that a certain amount will automatically go into another account which you can call, for example, your “mortgage or rent account” or your “mortgage and car account” – whatever you want. You can then set up a direct debit from that account to pay the “can’t live without” stuff, i.e., mortgage, rent, car, life insurance, pension, etc.
If you have a partner or spouse team up to the”‘pay yourself first” standing order then that’s even more money going in the right direction.
🧾 The tax bill standing order
At the end of each tax year you should calculate how much you anticipate you will be paying in tax for the next tax year. Things to consider will be revenues you brought in, pension contributions and if they were made through your business or not, etc.
If at all in doubt, that is what your accountant is so give them a call. Once you have an idea of what you need to be setting aside each month, this is the amount you will set up as a standing order for your tax bill savings account. Set up this standing order on a day you know that you will likely get paid is the only way you can ensure it does not disappear.
If you have an accountant and they charge an annual fee for their services, you can include a monthly amount to go towards this and include it in the tax savings account.
🆘 The in case of emergencies standing order
Either on the same day of the above standing orders or the next day, you should also set up a standing order for an emergency fund, whereby you set a certain monthly amount to go into another savings account. This figure can go up or down depending on your workflow and how on-time your clients pay. This money can be used for that emergency car repair bill, a replacement laptop or mobile phone, vet bill, the list goes on…
🏖️🎁☕The fun stuff standing order
Once all those standing orders do their job of keeping your finances siloed, you then have a very clear picture of where you stand for the fun stuff – the nice to have’s. Then for the nice-to-have purchases, you can set up another account but perhaps through a digital banking service, such as Yolt.
An account with a company such as Yolt can be used solely for disposable income and the great thing is they have top-up saving plans that round up purchases and send that extra top-up to a savings account. That separate account could be your holiday or dream purchase account.
🛌The good night’s sleep payback
Does it seem like too many accounts? Well, now that most banks and purchases are digital, it is possible to transfer funds easily between accounts. The pay yourself first payday trick compartmentalizes your finances (much like Granny did with her money jars) so the important things are covered first – including your behind come tax filing season.
Feeling financially secure on those essential payments will help towards a good night’s sleep, and that’s priceless.