There are many perks to freelancing, and flexibility is one of the biggest draws. However, while you may be flexible with your working hours and who you work with, you also have to be okay with a flexible income.
It’s no secret that freelancers can struggling with irregular income. While you might have a few clients on retainer, it’s still rare to see the same amount of money landing in your account every month. This makes saving money while working as a freelancer much more difficult, but not impossible.
If you’re hoping to save for a big ticket item, or if you’re hoping to take out a mortgage, saving money and keeping your accounts above board is essential. But how exactly is one supposed to manage this with an irregular income? Here are some tips that I used to be able to save for a deposit and secure a mortgage in one year.
Stop spending what you can’t afford
This sounds incredibly basic, but it’s just like your Grandma used to say: “live within your means”. A lot of people get sucked in by the lure of low monthly payments for high value items like TVs, computers and even furniture. While it might be nice to be able to get new things for a low monthly repayment, the interest on these items really adds up.
If you have regular income, it’s easy to decide if the payments are affordable, but with irregular income, you might be left short in a quiet month or while waiting for an outstanding invoice.
Split your business and personal accounts
If your aim is to save money, then you should keep your business accounts and personal accounts separate. You can pay yourself a monthly salary and use the leftover money to help in the quieter months.
However, if your aim is to secure a mortgage, then you will need to be careful about how your handle your accounts. If you’re a sole trader and decide to change your business to a limited company in the two years before your mortgage application, your bank won’t consider your income from your time as a sole trader. Before making any big business decisions, you should always check with your lender to make sure it isn’t going to impact your chances of getting a mortgage.
Don’t forget about taxes
Saving a portion of your income every month is only going to be helpful if you won’t have to hand it all over to the taxman at the end of every year. If you’re smart with keeping track of your income and hanging on to receipts, you should be able to make a lot of savings with your tax, but it’s still worth saving between 20-40% of your income every month to pay your tax bill at the end of the year. Anything left over can be put in a savings account to help pay for items upfront, or as a deposit on a home.