Contractors must know they are responsible for ensuring their business is financially viable. This can be difficult because it requires knowledge of various topics and skills. Contractor financial planning is a complex process, and getting stuck in the details is easy.
However, having a well-thought-out financial plan is essential for achieving success and stability in the long run. This blog will discuss six tips for better financial planning in 2023 for self-employed and freelancers in the UK.
1. Set Realistic Financial Goals
Setting realistic and achievable goals is crucial to achieving financial stability. This can include creating a savings plan or setting revenue targets for your business. It's essential to break down larger goals into smaller, more manageable ones to keep yourself motivated and focused.
2. Keep Accurate Records
Keeping track of all your income and expenses is crucial for financial planning. Accurate records can help you identify areas where you can cut costs and areas where you need to invest more money. It's essential to have an organised system for keeping track of your finances to avoid any errors or missed payments.
3. Create a Budget
Creating a budget is an essential step towards financial stability. Tracking your personal and business expenses and creating a budget to stick to is necessary. A budget can help you identify areas where you can save money and avoid overspending.
4. Save for Retirement
In the UK, taxpayers are allowed each year to put into a pension of their choice up to £40,000. Sometimes, the amount could be even higher if you have ‘carry forward’ available. This allowance can be helpful if you want to save money and reduce tax liabilities.
For business owners who have incorporated their company, using a pension allowance can be a smart way to lower corporation tax liabilities. It's important to remember the deadline for this allowance, which is the end of your company's financial year, to avoid any penalties.
This investment opportunity is the most tax-efficient one available, significantly as corporation taxes are rising, dividend allowances are decreasing, and even those on inside contracts can reduce their national insurance liabilities by using salary sacrifice options.
5. Manage Debt Wisely
Accumulating debt can be a significant obstacle to financial stability. Managing your debt wisely is essential by prioritising high-interest debt and creating a debt repayment plan. Being debt-free can give you financial freedom and more opportunities to invest in your business or personal goals.
6. Consult with a Financial Advisor
Consulting with a financial advisor can help you make informed financial decisions. A financial advisor can provide you with valuable insights and advice on how to achieve your financial goals. Finding a reputable financial advisor and weighing the potential costs of hiring one is essential.
While we can't know precisely how the UK market will look in five years, we can extrapolate from current trends and make some educated guesses. In any case, having a clear idea of how much money you will need means that you can plan accordingly. With a plan, you should be able to achieve the financial goals that you have set for yourself.