Close up of businesswoman using smart phone while calculating her bills


When you’re self-employed, you’re responsible for managing your finances and ensuring that your cash flow is positive. It can be challenging to even know where to start and many contractors and freelancers may also doubt themselves – and wonder whether the self-employed path is for them.

Being your own boss is great, but it also means that you won’t have a steady stream of income. Some months are bound to be better than others, so it’s important that your self employed budget takes into account the times when you won’t have as many leads or when you need to invest money in your business.

Because we’re specialist accountants, we’re aware of how to budget when self employed in order to thrive, whether you’re a sole trader or the owner of a limited company. Take a look at our top self employed budgeting tips:

1. Separate Your Personal and Business Accounts 

2. Organisation is Key 

3. Project Your Earnings and Expenses 

4. Track Your Cash Flow 

5. Set The Correct Rates 

6. Put Some Money Aside

7. Know Your Dates

8. Set Financial Priorities 

9. Reduce Your Outgoings

10. Understand What You Can Claim

11. Get Professional Advice

Separate Your Personal from Your Business Account

Opening a business bank account means you can separate your personal money from the one you get from your business. While sole traders don’t need to do this, since they and their business are considered one and the same, it’s still advisable in order to best manage your finances.

A separate account makes it a lot easier to create and manage a budget, as you can track incomings and outgoings, see how profitable your business is, know how much tax you need to pay, and more. It saves a lot of time when it comes to bookkeeping as well, as you won’t have to go through each and every single one of your transactions and figure out whether they belong to your business or not.

We provide business banking options at Gorilla Accounting, so get in touch if you’d like to learn more about our partners Metro Bank and Cashplus.

Be Organised

It goes without saying that being organised should be a priority when looking at how to manage your budget. Self-employed people tend to work with several clients at once and on several projects, so that they can diversify their income stream; if they’re not organised, something will fall through the cracks, which can impact their career and livelihood.

Whether you use a planner, a calendar, a whiteboard or an app, what matters is for you to keep track of all your tasks, gigs, client communication and project stages. It makes a world of difference for self employed budgeting.

Project Earnings and Expenses

If you’re a contractor or a freelancer, having a monthly plan to keep on top of your business expenditure is critical. A good way to gain this control is to project your income and your expenses while erring on the side of caution; being overoptimistic can cause issues down the line, so be realistic about what you may be able to achieve throughout the year.

By planning for the worst case possible (as in, by estimating the lowest possible earnings), you’re likely to spend less, which can help you to build up a contingency fund. If you’re not new to contracting, just take a look at the past 12 months and see how you fared; take that number as a baseline and use it to project your income for the upcoming months.

If you’re new to self-employment, you’ll want to take stock of everything, from potential clients and projects to knowing how much you need to live comfortably.

Close up Business woman using calculator and laptop

Track Your Cash Flow

It’s also important that you’re aware of all your expenses and incomings. Make sure everything is accounted for, including when you invoiced your clients; as a freelancer or a contractor, it’s inevitable that you’ll end up dealing with people who either don’t pay or who pay late. Our article “A Contractor’s Guide to Dealing with Late Payments” can help you to handle this issue.

While logging personal expenses in your head is fine, the same isn’t true of business records. You want to have a planner or, better yet, a way to track and check everything in real time. FreeAgent accounting software is a great option for this, since it helps contractors and freelancers to upload receipts, track expenses, keep on top of invoices and check transactions, just to mention a few of its benefits.

This software will make your life easier when it comes time to do your taxes as well.

Set the Correct Rates

To create and manage your contractor or freelancer budget, you must set the right prices. Many self-employed individuals, especially those who are just starting out, tend to ask lower rates than they should, so ensure that your income is high enough for your needs.

Take into consideration your living expenses and how much money you want to invest in your business, which can help you to find the right number. In addition, when you first start contracting, you need to do your market research, which should include market rates as well. Find out the average wages in the industry and what your competitors are charging.

Your experience is also another factor to consider. If you’ve been in the industry for many years, don’t price low. And, when you set your rates, you want to take your skills into account as well. Don’t sell yourself short; know what your worth is and price your services accordingly, which will help you to increase your earnings.

Continuously develop your skills by taking courses, doing training, learning new things and take on exciting and challenging gigs. The more you can do, the more you can charge your clients.

Put Some Money Aside

Full-time employment offers a degree of certainty that doesn’t exist with freelancing and contracting, so it’s crucial that you save some money for a rainy day. You never know if you’re going to need it. Work is not guaranteed, so you’ll want a cushion to keep you safe when you’re in between gigs.

The same goes for your future. Make sure you’re saving for your pension as well as for other milestones in your life, such as buying a house or travelling with family. Of course, putting some money aside for your taxes is equally important – we can help you to figure this out, as we’ve helped countless other self-employed individuals. As limited company accountants, we know all about self employed budgeting and tax planning.

Figure out how much you can set aside (ideally, you’re looking at 10 to 20% of your monthly income) and avoid dipping into your savings no matter what. The best way to do it is to have a dedicated bank account just for these savings and to forget they even exist.

This way, if you get sick or are without a job for a few months, you don’t have the additional stress and anxiety that comes from being left in the financial lurch.

Know Your Dates

While putting money aside for taxes, you should also stay on top of all relevant tax dates. Not only will you be organised, but you will also be aware of the taxes you have to pay throughout the year, which means you’ll know how much it’s going to cost you. It will also prevent you from being fined and having to pay penalties for late payment.

We have created an accounting calendar that will help you to know all the contractor and freelancer dates you don’t want to miss, including your self-assessment deadlines.

Set Financial Priorities

Make sure that you’re prioritising the right things in regard to your income. Many people subscribe to the 50-30-20 model, which means they use 50% of their earnings for business and living expenses and 30% on variable expenses like travel and clothing – as mentioned, the other 20% goes towards their savings. There is no set rule for how to do this, but it can be a good starting point if you’re unsure how to allocate your income.

If, for instance, in a certain month, you need to spend money on a certification because you know this will help you to reach a wider clientele, then you should prioritise it above other expenses.

freelancer working on laptop

Reduce Your Outgoings

When you’re working for yourself, you can never stop managing your budget, which means you can never stop analysing your expenses either. If there’s any way to cut back on expenses, you do it. Take inventory of what you’re spending in order to figure out the best way to cut costs. This applies to new contractors and freelancers as well to those who are already well-established in their self-employed career.

You may not need to spend money on a new computer at the moment if your current one is still good, for example. Also, reduce your unnecessary outgoings wherever possible by paying attention to your spending habits, be it in regard to your grocery trips or the number of times you eat out each month.

Understand What You Can Claim

Knowing your allowable expenses will help you to create and manage your self employed budget. After all, when your company pays for certain things, from physical items to software, you may be able to deduct the costs against the company’s corporation tax bill.

Some things are not deductible, so you need to stay on top of what you can and can’t claim (for example, you can’t claim things that you bought for personal use).

Travel

In theory, you should be able to claim any travel that you do to and from home to your client’s site; this includes mileage or public transport. Still, it’s imperative that you keep the 24-month rule in mind. At face value, this legislation lets you claim travel expenses to a temporary workplace for up to two years; however, a workplace is only deemed temporary if your contract’s engagement was inferior to 24 months and if the engagement period was under 24 months.

Additionally, you can spend over 40% of your time at that workplace if you don’t expect to work there for more than this time period. In this case, you can claim travel expenses.

Meals

You may be eligible to claim food expenses if you’re working at a remote client site, away from your usual workplace, and when you’re stay away overnight. For example, if you have to pay for a hotel room or a B&B stay, you can claim this against your tax bill.

Business Equipment

You will require equipment and tools, as well as software, to do your job. If this equipment is only used for business, then you can claim things like internet costs, hardware like computers and printers, stationary, advertising costs, website costs, professional subscriptions and protective clothes.

This is not a comprehensive list, as there are many other expenses you can claim so, if you’re in doubt (or aren’t sure how to claim expenses when working from home), talk to Gorilla Accounting and we’ll be happy to help.

freelancer on sofa with laptop on back rest

Get Professional Advice

Managing your contractor or freelancer budget is one of the most important things you can do when you’re self-employed. It ensures the positive cash flow of your business and helps you to thrive. By providing accounting services, we can help you to manage it even better – be it with our FreeAgent bookkeeping software, our expert financial advice, or our tax planning, you will be able to stay on top of your self employed finances at all times.

Contact us at any time with your enquiry and we’ll be happy to discuss your needs. In the meantime, why not check out our contractor tax calculator to add your take-home pay to your budget?

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