Planning Finances As A Self-Employed Parent

Planning Finances As A Self-Employed Parent web2

Self-employment can bring a vast amount of freedom, flexibility and empowerment. While self-employment as a tradesperson can bring significant benefits and a chance to work on your terms without answering to anyone else, it can bring a lot of responsibility and stress, especially when it comes to unpredictable income. 

Managing finances can be challenging but vital to your business and household as a self-employed parent. When you have so many different aspects to consider, making a plan for your finances is essential to reduce stress and maintain financial health for your family. 

Are you a self-employed tradesperson looking for financial advice? Check out our 10 Steps To Secure Future Financial Security As A Self-Employed Tradesperson to help you figure out the best next steps to take for your business.

Create A Budget: For Work And Personal Expenses

Understanding your expected expenses can be a great way to understand the cash flow needed to support your business and family. 

For your personal expenses, it’s wise to budget for aspects including:

  • Mortgage or rent
  • Council tax
  • Household bills
  • Living costs such as food, clothes and health
  • Finance and insurances 
  • Leisure such as gym memberships and holidays
  • Travel expenses such as MOT and car insurance
  • Family and friends

An effective way to budget for a business is to look at the previous 12 months of expenses and categorise them, such as marketing, materials, staff costs, training, etc. Then use this data to determine your budget for each category for the following year.

Tip: By analysing last year’s expenses, look at what was important, essential, nice to have or that provided no value. This can help you cut costs and be more mindful of how you would categorise future expenses before you buy. 

Pay Yourself A Salary

What can make finances difficult when you are self-employed is simply dipping in and out of your business account when you need it. By setting a salary that covers your personal and family expenses, you can better budget. Knowing your salary can also help you to plan work and know exactly how much your business needs to bring in to meet your business and personal expenses.

For months where you can take more than your salary, try leaving it in a savings fund so that you can support yourself during leaner months. 

Use Different Accounts For Different Outgoings

Using different accounts or transfer accounts in your banking can help to make sure you have enough money for outgoings. It ensures all of your money is distributed in the best way for you and your family. 

For your business, having your business account and a separate pool where you can automatically transfer money for your tax bill, and National Insurance contributions can ensure you’re always putting money by. You may also want to allocate funds using a profit first method to ensure your profit doesn’t get eaten away by business expenses. 

A common method of planning your finances is to use five different accounts for your personal expenses. The first account will be for all of your bills and mandatory expenses. The second is for your lifestyle expenses, such as home essentials, takeaways, and fun outings. Then there are three saving accounts: an emergency fund (ideally with three months of living expenses saved), a short-term goal fund and a long-term goal fund. 

As a parent, your long-term goal fund may be a Junior ISA or saving for their university tuition fees. 

Consider Life Insurance And Inheritance

While this isn’t anything we like to consider, knowing your children would be provided for should the worst happen is important. A key part of financial planning is creating a will. Children are not automatically provided for, so writing a will that states your precise intentions and express wishes is essential. 

Life insurance is also worth considering and budgeting to help your children be financially secure should the worst happen. 

Are you a tradesperson looking that is struggling to set work and life goals?

If yes, check out our 10 Check out our Guide to doing exactly that!

Plan Your Retirement Strategy

Another aspect that can be difficult to plan when self-employed is your retirement. However, the sooner, the better is key for your retirement as it gives your pension pot longer to grow. 

Your retirement plan doesn’t have to be paying into a pension fund. Instead, you may use properties, investments or rental or passive income as a way to fund your retirement. While the choice is yours, preparing your strategy now can serve you in the long run. 

Another crucial consideration for self-employment is National Insurance contributions. In order to access a state pension, you will need to ensure you have sufficiently contributed with your National Insurance contributions, as this will be on your record. If there are gaps in your contributions, you could be denied a state pension. 

We understand that financial planning can be overwhelming, but just starting with one small step, such as budgeting for household bills, can be a great way to start. Then, when you feel comfortable with the first step, move on to the next step in your journey to financial security. 

With the average tradesperson spending almost 14 hours per week on admin tasks, an automated system with project templates and schedules can give you almost two whole days a week back. Start your free trial today and see how much time you can save. 

Follow us

Get the latest content

All of the latest content delivered straight to your inbox