Having been self-employed in property and journalism for the majority of my working career, I’ve always had to have my wits about me. Without an employer, you have to sort a lot of stuff yourself. From pensions and sickness to calculating your tax, it’s all on you.
The absence of a regular paycheck isn’t for everybody, but the upside is you get to be your own boss and structure your own schedule. As the boss – all the rewards and risks fall on you.
Over the years, my finances have been a bit of a roller coaster. But regardless of what’s happening, I’ve always known the need to have a steady income flow to pay the bills.
Reading an article recently on financial dysmorphia – an anxiety-driven, unhealthy obsession with saving money, sometimes to the state of severe deprivation, despite having a stable income – it got me thinking about what I’ve learnt about money.
My realisation surprised me.
I’m not going to say I’ve cracked it, but having gone through some big highs and lows and managing to keep afloat (financially and mentally), I feel I’ve become a pretty good driver of my own financial train, so I thought I’d share my learnings.
Money always flows (no matter how hard you try and stop it)
Like the sea, money ebbs in and out, and like trying to hold a handful of water, the more you try and hang on, the more will drip through your fingers.
It sounds simple, but changing my mindset on money from something that you have (and store like a possession) as opposed to an ever-flowing force really helped me. Money, by its very being, is always on the move. I may have some one day, then the council tax department may have it the next, then it goes from their account to… well, who knows where!
Understanding your own personal cash flow is the key to understanding your financial position. Knowing what you have coming in versus what you have going out is the simplest tool in the world.
Just jot it down with pen and paper if you don’t want to get fancy. Yet despite it being so simple, there are still many people who don’t balance their books.
Use it, don’t hoard it
Being self-employed can be precarious, and so I err on the side of caution. But lately I’ve realised what was once a decent sum stashed into a cash Isa some years ago has been eaten away by inflation.
Luckily, I’ve also invested in stocks and shares Isas, but it was disappointing to realise the money I’d set aside in cash had nothing like the spending power it had 15 years ago, which then made me question why I hadn’t taken action.
It’s really important to have an emergency budget, but beyond that, money just sitting around in an account rather than being used to buy joy – or time for you to have joy – is a wasted resource. It may sound odd, but I gave myself permission to spend now, rather than waiting until tomorrow.
Set aside money that ‘isn’t yours’
When I receive money into my account, it’s paid gross. That means I have to calculate the tax, National Insurance and what pension contributions I may be able to make.
As a rough rule of thumb, I set aside 35pc of every paycheck – the same day it’s received – and place it in a different account. I top up my Premium Bonds (you can have a maximum of £50,000) and then forget about it until either HMRC sends its demands or NS&I informs me I’m a lucky winner of a tax-free prize.
To ensure I keep up with pension contributions to my Sipp, I have a regular standing order set up to cover the bare minimum, which is £2,880 per year for non-earners. Where possible, I top this up from my relevant earnings.
I know each of us has our own financial goals, but the most important thing is that money is a tool – it’s up to us how we use it.