Speaker 1: This series is brought to you by L& G, helping
Speaker 1: you build a future that's a little bit richer.
Iona Bain: Hello and welcome to A Little Bit Richer with me,
Iona Bain: Iona Bain, brought to you by Legal & General. Now, being self-
Iona Bain: employed can be a financial rollercoaster. Managing the ups and
Iona Bain: downs definitely can be a challenge, whether it's sending invoices,
Iona Bain: juggling projects, or looking for new clients, it's easy to
Iona Bain: forget that actually what's most important is the freedom of
Iona Bain: being your own boss, even if it can feel unpredictable
Iona Bain: at times. But how can you make the self- employed
Iona Bain: life work for you? Well, whether you're bossing it already
Iona Bain: or dreaming of working for yourself one day, here to
Iona Bain: give us some tips on managing finances is friend of
Iona Bain: the show and fellow freelancer, Crystal McGillivray. Crystal is an
Iona Bain: accountant, campaigner, and speaker who actually has a master's in
Iona Bain: behavioral and economic science, so she's just the person we
Iona Bain: need to talk to about planning ahead when you're working
Iona Bain: for yourself. Welcome, Crystal.
Crystal McGillivray: Hi, I'm so glad to be here.
Iona Bain: Can you set the scene for us and describe the
Iona Bain: kinds of challenges that the self- employed can face?
Crystal McGillivray: Yeah, self- employment is such a fun thing to do,
Crystal McGillivray: but income is so unpredictable. The challenge that a lot
Crystal McGillivray: of self- employed people face is not having that stable
Crystal McGillivray: income like you do when you are employed. You have
Crystal McGillivray: your salary, it's paid every month at the same time,
Crystal McGillivray: guaranteed. But when you're working for yourself, you're often chasing
Crystal McGillivray: clients, you're dealing with payment terms, you're having to look
Crystal McGillivray: at your bank account and think about costs, so there's
Crystal McGillivray: quite a few things to manage in making sure that
Crystal McGillivray: that business runs and functions nice and smoothly. Yeah, it's
Crystal McGillivray: a job.
Iona Bain: But how important is it for the self- employed to
Iona Bain: just normalize the conversation around their finances and not fear
Iona Bain: them and not kind of think that they're failing if
Iona Bain: they find some aspects of this whole issue quite tricky?
Crystal McGillivray: I mean, I guess what we're thinking about here is
Crystal McGillivray: when you are employed, your finances are effectively sorted with
Crystal McGillivray: a pension and you're contributing, you set that money aside
Crystal McGillivray: for however many years, you have a retirement plan. When
Crystal McGillivray: you're self- employed, if you don't do that, if you're
Crystal McGillivray: living in the moment, kind of generating an income, covering
Crystal McGillivray: your costs, you're living for today, and you actually don't
Crystal McGillivray: have anything put away for later in life, whether that's
Crystal McGillivray: saving, investing, so it's really key to do that initial
Crystal McGillivray: hard work to get clear on that financial aspect and
Crystal McGillivray: set something up so that later you can relax.
Iona Bain: Absolutely. Like you deserve if you've worked really hard.
Crystal McGillivray: Yeah.
Iona Bain: What are the practical ways that people can manage their
Iona Bain: money when their income isn't predictable?
Crystal McGillivray: First of all, it's really getting clear on the cash
Crystal McGillivray: side, so if we think about bills, things you have
Crystal McGillivray: to pay for. Doing that initial bit of work of
Crystal McGillivray: looking through what subscriptions do I have? What cost do
Crystal McGillivray: I incur to make this business run? But then outside
Crystal McGillivray: of that, what are your personal living expenses? When you're
Crystal McGillivray: thinking about your income that you need to generate, you're
Crystal McGillivray: clear on what that number needs to be. And then
Crystal McGillivray: you're stabilizing ideally in terms of your business plans to
Crystal McGillivray: generate that income. And that allows you to also factor
Crystal McGillivray: in savings, investments, and set up those automations so you can
Crystal McGillivray: plan for the future.
Iona Bain: Are there particular budgeting techniques that might work for a self-
Iona Bain: employed person who's facing that irregular income?
Crystal McGillivray: Yeah, there's a few. I mean, the first point again
Crystal McGillivray: is really being clear about your ins and outs, so
Crystal McGillivray: having that as your foundation. And you might want to
Crystal McGillivray: think ahead of, I need to pay this much to
Crystal McGillivray: myself as a minimum to be okay. And one thing
Crystal McGillivray: that's really topical is of course the irregularity of your
Crystal McGillivray: income, so you may have months that are amazing and
Crystal McGillivray: you'll pay maybe three, four times the basic.
Iona Bain: And then it's very tempting to celebrate.
Crystal McGillivray: Yes, of course. Yeah.
Iona Bain: But perhaps that's the month when you need to make
Iona Bain: sure that you're putting extra aside for the lean times.
Crystal McGillivray: You're spot on. Yeah, so those months where it's amazing
Crystal McGillivray: and you've been such a success, still see as, okay,
Crystal McGillivray: I'm going to pay myself what I need to pay
Crystal McGillivray: myself and put this extra into an emergency fund, maybe
Crystal McGillivray: top up your pensions if you haven't maximized. And of
Crystal McGillivray: course you can celebrate, but do it within reason and
Crystal McGillivray: prepare for the future.
Iona Bain: What is a good way to handle those periods when
Iona Bain: you've got big invoice gaps, dry spells? How can someone
Iona Bain: who is self- employed smooth their cash flow?
Crystal McGillivray: We call it cashflow management. This is where you are
Crystal McGillivray: paying attention to the fluctuations of your bank balance effectively,
Crystal McGillivray: so you think about your bank statement and you think
Crystal McGillivray: about the numbers going up and down in terms of
Crystal McGillivray: your end of day balance. What you want to do
Crystal McGillivray: is make sure it does not drop to a negative. That
Crystal McGillivray: requires you to have maybe a buffer. It could be
Crystal McGillivray: that you have separate bank accounts, so money comes into
Crystal McGillivray: one account, but then is dispersed amongst different accounts for
Crystal McGillivray: different things. And that helps you manage taxes in the
Crystal McGillivray: future, making sure you're paying yourself a set amount.
Iona Bain: Yeah, absolutely. Setting aside money for your tax is really
Iona Bain: important because that can be a nasty surprise for a
Iona Bain: lot of people who are new to being self- employed.
Crystal McGillivray: I hear it all too often. People who've had that
Crystal McGillivray: uncomfortable, unfortunate situation where they weren't aware of what their
Crystal McGillivray: tax bill would be come January. When you are due
Crystal McGillivray: to pay your taxes and submit your return, the deadline,
Crystal McGillivray: and whether it's 3, 000 pounds or much more, but
Crystal McGillivray: actually you can find out way before, and that's kind
Crystal McGillivray: of part of the managing your money that I encourage.
Iona Bain: Yeah, absolutely. And even if you end up using an
Iona Bain: accountant and lots of self- employed people do, you will
Iona Bain: always feel that much more empowered if you understand the
Iona Bain: numbers yourself. I know an awful lot of folks who
Iona Bain: are listening to this and watching this who are self-
Iona Bain: employed will face this problem. It's chasing invoices. We have
Iona Bain: all been there. I know I have. Do you have
Iona Bain: any advice on how you can navigate that issue?
Crystal McGillivray: There's a couple of things. First of all, I encourage
Crystal McGillivray: people to send invoice reminders, even before it's due, so
Crystal McGillivray: you could send a polite email, " Hey, just letting you
Crystal McGillivray: know your invoice is due in a week or so.
Crystal McGillivray: Thanks. Great working with you." But what you're doing there
Crystal McGillivray: is making sure that they have your invoice and it's
Crystal McGillivray: on their radar, so it hasn't got lost in the
Crystal McGillivray: emails. Also, and this is kind of before the fact,
Crystal McGillivray: making sure you've got the right information, you've got the
Crystal McGillivray: right email contact, you've got the right address for the
Crystal McGillivray: company, that you're invoicing, et cetera.
Iona Bain: Get that established straightaway when you start working with the client.
Crystal McGillivray: Often if you're working with a company, they pay based
Crystal McGillivray: on invoice date, so the longer you take to invoice,
Crystal McGillivray: the later you'll be paid. There's also one that I
Crystal McGillivray: encourage people to do, but I know also is a
Crystal McGillivray: little bit uncomfortable. You can actually charge a penalty if
Crystal McGillivray: your client is late to pay. And what I say
Crystal McGillivray: to do is just pop a little narrative on the
Crystal McGillivray: bottom of your invoice to say you will be charged
Crystal McGillivray: a penalty if this is late. And often that alone
Crystal McGillivray: just deters people paying you late, so it's a little
Crystal McGillivray: kind of secret weapon you could have.
Iona Bain: I think it's interesting that just saying that you are
Iona Bain: legally entitled to charge, I think it's 8% interest on
Iona Bain: the value of your invoice if it is later than
Iona Bain: it should be. That alone will often do the trick
Iona Bain: because it just shows that you know your rights.
Crystal McGillivray: Yes.
Iona Bain: And it indicates to the person who should be paying
Iona Bain: you that they can't mess you about.
Crystal McGillivray: And then one other point, requesting a deposit, so money
Crystal McGillivray: upfront before you actually start the work, especially if you
Crystal McGillivray: are going to incur some costs along the way.
Iona Bain: And especially if it's a longer term project, say you're
Iona Bain: working on it for six months, it's more than reasonable
Iona Bain: to say, how about we have one payment upfront and
Iona Bain: then the other payment on completion?
Crystal McGillivray: Or even break it down even further, quarters, maybe set
Crystal McGillivray: milestones, but I encourage people to have those conversations early
Crystal McGillivray: and see if there's room for that to happen.
Iona Bain: And what's your feeling about clients that despite you following
Iona Bain: all these rules and doing your best to get that
Iona Bain: invoice paid on time, they just won't pay up and
Iona Bain: it does happen occasionally? What are your thoughts on maybe
Iona Bain: deciding not to work with those clients again? Because freelancers
Iona Bain: find it difficult, don't they, to walk away from clients
Iona Bain: even when they're late paying invoices.
Crystal McGillivray: When it comes to chasing payments, loop in who you
Crystal McGillivray: need to, it kind of opens up that conversation so
Crystal McGillivray: more people know about it. But in terms of somebody
Crystal McGillivray: who has paid you late, I don't feel right saying
Crystal McGillivray: don't work with them again. I think because it depends
Crystal McGillivray: on the client, right?
Iona Bain: Yeah.
Crystal McGillivray: For example, me, I'm not sensitive to receiving late payment
Crystal McGillivray: and that's because I have reserves and my financial situation
Crystal McGillivray: makes that okay. As long as it's a good relationship,
Crystal McGillivray: especially if you're working with a large organization, there's quite
Crystal McGillivray: a bit of a process to go through to get
Crystal McGillivray: that paid. And actually a real case, I'm working with
Crystal McGillivray: someone now, they encouraged me to send the invoice a
Crystal McGillivray: month before we started working together.
Iona Bain: They sound like a dream client.
Crystal McGillivray: Great client. It's been like a month and a half
Crystal McGillivray: now. They're late paying. They're not being difficult. There's just
Crystal McGillivray: lots to go through to get that settled. And then
Crystal McGillivray: also you're thinking about the value of the client. Is
Crystal McGillivray: it worth it? Do you still definitely get paid? What
Crystal McGillivray: is it doing for your career? Is it an investment
Crystal McGillivray: in that sense that actually working with them is going
Crystal McGillivray: to position me quite well? If that stuff is not
Crystal McGillivray: included, then yes, maybe question, should I work with them?
Crystal McGillivray: If, am I wasting time that it could be spent on
Crystal McGillivray: more valuable things, getting this paid?
Iona Bain: That's really good advice, Crystal, because I think it's very
Iona Bain: difficult to be able to make a hard and fast
Iona Bain: rule about these things. But what I will say is that
Iona Bain: the more that freelancers can stick up for their rights
Iona Bain: and make sure that they get what they deserve, and
Iona Bain: that includes having your invoices paid on time, even if
Iona Bain: you do it in a polite way.
Crystal McGillivray: And actually, there are some organizations that have policies where
Crystal McGillivray: they pay freelancers, self- employed people immediately because they understand
Crystal McGillivray: the situation when it comes to working for yourself, money
Crystal McGillivray: management. I mean, if you can seek out those companies
Crystal McGillivray: to work with-
Iona Bain: And that's where networking with other self- employed folks-
Crystal McGillivray: Yes.
Iona Bain: ... can really help because they can say, " Those are
Iona Bain: great clients. Those ones, not so much."
Crystal McGillivray: Not so much.
Iona Bain: Crystal, you already touched on this, but how can we
Iona Bain: make sure that we are not neglecting longer term things
Iona Bain: that are really important like our retirement savings?
Crystal McGillivray: I think first of all, it's definitely roll up your
Crystal McGillivray: sleeves and do your numbers, so know how much you
Crystal McGillivray: have available, know how much you want to have available
Crystal McGillivray: later in life, so maybe use a retirement calculator to
Crystal McGillivray: see, okay, what does that look like? How much do I need to
Crystal McGillivray: put away every month to get there? But in terms
Crystal McGillivray: of now in the practical sense, automate is always my answer.
Iona Bain: And when you talk about automation, can you give us
Iona Bain: a couple of examples of what that looks like?
Crystal McGillivray: Yeah, of course. If we're thinking about investing or putting
Crystal McGillivray: money aside into an ISA or a pension pot, a
Crystal McGillivray: standing order or direct debit to go to that account,
Crystal McGillivray: so you are saving every single month on the back
Crystal McGillivray: of the calculations you've done for how much you want
Crystal McGillivray: to have in retirement. The automation is that money leaving
Crystal McGillivray: your account to go towards investing, to go towards your
Crystal McGillivray: saving pot. And once that's set up, you don't have
Crystal McGillivray: to think about it.
Iona Bain: That is a very, very good hack. I also want
Iona Bain: to just touch on the different types of self- employed
Iona Bain: status because that can then have an impact on how
Iona Bain: you manage your finances. Can you just very briefly talk
Iona Bain: us through the difference between a sole trader and someone
Iona Bain: who has a limited company?
Crystal McGillivray: When you're a sole trader, basically all the money you
Crystal McGillivray: earn effectively is you earning that money, so everything you
Crystal McGillivray: pay for comes out of that number, so income and
Crystal McGillivray: costs come out. What's left is your profit, and that's
Crystal McGillivray: where tax is calculated. Quite basic, quite straightforward. When you
Crystal McGillivray: have a limited company, it's a separate legal entity, so
Crystal McGillivray: it's almost like another person. You create this company and
Crystal McGillivray: the company earns money and then you can pay yourself
Crystal McGillivray: from that company. And it's a good time to mention
Crystal McGillivray: that because if you think about maybe you were employed
Crystal McGillivray: before and your company paid into your pension for you,
Crystal McGillivray: you could set up the same thing for yourself where
Crystal McGillivray: your company pays into your pension as well as you
Crystal McGillivray: deducting it from your salary that you're paying yourself.
Iona Bain: Ah, so it's like you have a workplace pension.
Crystal McGillivray: Exactly.
Iona Bain: And what advantages would that give you?
Crystal McGillivray: So much. I mean, first of all, the payment to
Crystal McGillivray: your pension from your company is seen as a tax-
Crystal McGillivray: deductible, so when we talk about being self- employed, income,
Crystal McGillivray: costs, profit, and then tax. Here, it's income, costs including
Crystal McGillivray: that pension payment, then profit, and then you calculate your tax.
Iona Bain: That could be a good option if you are looking
Iona Bain: to really supercharge your pension saving.
Crystal McGillivray: Absolutely.
Iona Bain: And are there particular tax benefits to having a limited
Iona Bain: company versus being a sole trader?
Crystal McGillivray: Yes, there are. And it's one of the big questions
Crystal McGillivray: that are put to me actually. When you earn over
Crystal McGillivray: approximately 50K in terms of your income, there are tax
Crystal McGillivray: benefits in terms of how you can pay yourself via
Crystal McGillivray: a limited company, and eventually you start to pay less
Crystal McGillivray: tax as a result. When people are deciding between self-
Crystal McGillivray: employment or limited company, there are other factors to consider
Crystal McGillivray: depending on who you're going to be working with, maybe
Crystal McGillivray: they prefer you to have a limited company, but if
Crystal McGillivray: those things don't really matter, like the legal status, liability,
Crystal McGillivray: then sometimes being a sole trader is absolutely fine if
Crystal McGillivray: you're not earning that much that the tax incentives are really
Crystal McGillivray: going to show up for you.
Iona Bain: I guess it's one of those things where if you're
Iona Bain: not sure, maybe having a conversation with an accountant would
Iona Bain: make sense.
Crystal McGillivray: Absolutely. Absolutely.
Iona Bain: What are some of the ways that self- employed folks
Iona Bain: can feel a bit more in control of their income and
Iona Bain: therefore their finances?
Crystal McGillivray: The first thought that comes to mind is diversifying your
Crystal McGillivray: income type. Often you may be a freelancer and you
Crystal McGillivray: do the odd job and you do the old project,
Crystal McGillivray: but actually thinking about having a retainer with clients where
Crystal McGillivray: you're earning the same money from this particular client every
Crystal McGillivray: month or recurring income and that would help provide kind
Crystal McGillivray: of like a base level income and you can build
Crystal McGillivray: on top of that.
Iona Bain: I have to say that I've had a lot more
Iona Bain: peace of mind ever since getting certain regular clients on
Iona Bain: my books as a freelancer, but also a lot of
Iona Bain: this is about the service that you offer and making
Iona Bain: it as unique as possible. And what are your thoughts on that?
Crystal McGillivray: This is around the relationship building side and actually what
Crystal McGillivray: are you selling and how are you communicating that and
Crystal McGillivray: really targeting what these organizations need. And the other point
Crystal McGillivray: I wanted to mention actually was income protection. Income protection
Crystal McGillivray: is there to protect your income if say you were
Crystal McGillivray: to get sick, so when we're talking about income uncertainty
Crystal McGillivray: and not knowing how much you're going to earn next
Crystal McGillivray: month or you possibly being ill because that does happen,
Crystal McGillivray: you could have a policy in place that will pay
Crystal McGillivray: your salary up to a certain percentage every month to
Crystal McGillivray: see you through that period.
Iona Bain: And we're talking about an insurance policy here.
Crystal McGillivray: An insurance policy.
Iona Bain: And people might be thinking, " I feel pretty healthy. And
Iona Bain: if I can't work, well, I'll just dip into my
Iona Bain: savings." But why might that be a little bit shortsighted?
Crystal McGillivray: I mean, it's the hardest thing about insurance, isn't it? It's
Crystal McGillivray: you don't know what's going to happen. And I'm sure
Crystal McGillivray: we have all come across stories where something has happened
Crystal McGillivray: unexpected and it just throws everything out of whack, but
Crystal McGillivray: that insurance policy is there to help you. And when
Crystal McGillivray: we're thinking about how much it costs, it's not a
Crystal McGillivray: lot of money in the grand scheme of things for
Crystal McGillivray: that peace of mind later.
Iona Bain: And I also just wanted to touch on an issue
Iona Bain: that is definitely a danger for the self- employed, which
Iona Bain: is that you can end up feeling like your self-
Iona Bain: worth is wrapped up with how much you earn and
Iona Bain: how well you're doing as a self- employed person. And
Iona Bain: as a recovering goalaholic, perfectionist, someone who used to really
Iona Bain: think that the career that I have was central to
Iona Bain: my identity is still very important to me, but I
Iona Bain: have learned to just take more of a step back
Iona Bain: from it in recent years. But it's hard, isn't it?
Crystal McGillivray: It is hard. I think it's also hard to understand
Crystal McGillivray: that the work you're doing, it's meeting a need of
Crystal McGillivray: the person you're selling to. You're having a value exchange
Crystal McGillivray: and that money you're being paid is off the back
Crystal McGillivray: of how much of a need is it for that
Crystal McGillivray: client or individual, less so you and your worth as
Crystal McGillivray: a human. Making this a bit more practical, when you're
Crystal McGillivray: having those conversations and you're maybe looking to price up
Crystal McGillivray: your services, focus on what they're looking for, where their
Crystal McGillivray: challenge lies, what they're trying to get sorted and focus
Crystal McGillivray: the conversation on that because that's what they're paying you
Crystal McGillivray: for, to address that issue.
Iona Bain: Yeah, absolutely. And it's striking that balance, isn't it, between
Iona Bain: not undervaluing yourself and then not taking your work home
Iona Bain: with you too much. And it's especially hard if you
Iona Bain: do work from home as a self- employed person. Having
Iona Bain: that separation between your work life and your personal life
Iona Bain: is more important than ever as you go along because
Iona Bain: actually that is what's going to allow you to come
Iona Bain: to work, bring your best self, do your best work,
Iona Bain: and show up for the client.
Crystal McGillivray: Absolutely. And I think there's something around creating that separation, so if you
Crystal McGillivray: do work at home, maybe trying to be as rigid
Crystal McGillivray: as you can in terms of your working hours, you
Crystal McGillivray: cut off at a certain point. Understandably, there are times
Crystal McGillivray: where you have to work later, but trying to create
Crystal McGillivray: something that draws a line between the two, so it's
Crystal McGillivray: in and out.
Iona Bain: I have my home office and when I close the door on it, that's the
Iona Bain: signal to myself to leave it behind and to relax.
Crystal McGillivray: Absolutely.
Iona Bain: There's been some great advice here, Crystal, but if there
Iona Bain: is just one thing that you would like viewers and
Iona Bain: listeners to take away from this episode, what would it be?
Crystal McGillivray: I would encourage people to really understand where they are
Crystal McGillivray: financially. And what that means is, do you have savings?
Crystal McGillivray: Have you got a buffer? And understanding, well, how much
Crystal McGillivray: do I need to have coming in every month to
Crystal McGillivray: be okay? And I guess the follow- up would be
Crystal McGillivray: around the insurance piece maybe if that's needed for you.
Crystal McGillivray: But that cash piece is the biggest bit because if
Crystal McGillivray: you think about it, if you don't have that sorted
Crystal McGillivray: and you've got bills to pay, you end up having
Crystal McGillivray: to borrow and that can send you in the wrong direction.
Iona Bain: Build up your buffer. Brilliant advice. Thank you, Crystal.
Crystal McGillivray: Thank you.
Iona Bain: That's it for today's conversation. I really hope that you're
Iona Bain: walking away from it with a bit more clarity and
Iona Bain: importantly, a few practical ideas to put in place so
Iona Bain: you can enjoy all the perks of being your own
Iona Bain: boss. If you found this episode helpful, please do share
Iona Bain: it with someone else who's self- employed and might be
Iona Bain: struggling with the same challenges and help them get a
Iona Bain: little bit richer too. This podcast is brought to you
Iona Bain: by L& G. You can keep up with the show
Iona Bain: on YouTube, TikTok and Instagram @ legalandgeneral. And if you've got
Iona Bain: a question or a topic that you'd like answered on
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Iona Bain: Until next time, see you soon and thanks for listening.