How to Budget for Breaks when You’re Self-Employed

There are a lot of benefits to being self-employed. You get to choose your own hours (in theory), do something you love, and explore new opportunities with amazing people.

However, self-employment also comes with a lot of challenges to consider. For instance, there’s no-one in the background to make sure that you still get paid if you need to take some time off work for sickness, personal reasons, or just a good old fashioned break.

There comes a time when we all need to take a break from work, but it can be very difficult for self-employed people to find a way out without struggling financially. However, you can’t just commit yourself to working every day, no matter what.

Here’s how you can make sure that you’re prepared for a much-needed absence when you’re self-employed, freelancing, or working as a contractor.

1. Keep Monthly Costs Low

First things first, the easiest way to make sure that a day off work isn’t a disaster, is to ensure that your monthly expenses are as low as possible. Check out the outgoing expenses that you commit to each month and ask yourself what you can do to reduce fees. For instance, if you’re taking out a loan, it’s crucial to ensure that you check you’re getting the lowest possible price first. If you’re currently committed to a specific gas or electric provider, can you check to see whether you can get a better deal elsewhere?

Cutting your monthly fees to an absolute minimum will ensure that you know exactly how much money you “have” to spend to keep yourself and your family safe each month. If you know how much you generally earn per day, you’ll also be able to calculate how many unpaid workdays you can afford each month without having to worry about unpaid bills.

2. Ensure yourself Against Unexpected Changes

If you’re new to freelancing or self-employment, then you may not know this, but you can insure yourself against the possibility that you won’t be able to work. As a self-employed person, you probably already have business insurance and other forms of coverage. Income protection insurance is a kind of cover you can get to replace your monthly income if you’re unable to work because of unemployment, accident, or illness.

If you’re worried about your long-term health, you can also try applying for critical illness cover as part of your life insurance. When you have this insurance in place, and you’re diagnosed with a medical condition, listed within your policy, you receive a lump-sum payout. It’s up to you which insurance seems more appealing. You could even get a combination of both.

3. Prioritise your Savings

The more money you have in your emergency savings account, the less stressed you’ll feel when you decide that you need to take time off work for holiday or sickness purposes. When you give yourself your income each month, you should be splitting your earnings into a series of different categories. First, you’ll need to put money aside for the taxes that you’ll owe at the end of the year – remember, you’re responsible for paying those.

Next, you’ll have to ensure that all of your critical expenses are handled, including office rent, mortgage, food, clothing, car insurance, and so on. Finally, when you’re left to assign “spare” money

to other things like entertainment and savings, make sure you put your savings first. The more you can have in your “just in case” fund, the better. Peace of mind when you need it will feel better in the long-term than extra shopping sprees and nights out now.

4. Plan in Advance

Finally, you can’t plan for when you might be sick or unable to work. However, you can plan for certain dips and lulls in your work schedule. The more time you spend self-employed, the more you’ll begin to notice changes in your calendar that happen every time of year. For instance, you might notice that you don’t make as many sales during April and March, but you earn double during June and July. In that case, you can spread your money out throughout the months by assigning extra savings during the months that you earn more.

Lulls in your income will also help you to figure out when you should be planning your family holidays and work breaks to experience the lowest impact on your income. The more prepared you are, the less money you’ll lose over the course of the year.

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