Financial Advice for the Self Employed

Are you looking for ways to improve your finances? If you aren’t the best at money management, finding information to help you get on track can seem overwhelming. To help you out, Castle Finance has come up with helpful financial advice on budgeting and loans which should help.

How to Budget

You’ve likely heard of budgeting at least once, even if it was in passing conversation. As a self-employed person, budgeting is definitely something you should invest time in doing. The reason is that budgeting helps you live within your means, avoid debt, and save. These are all things you need for healthy finances and a balanced life as a self-employed person.

What is a Budget?

To begin with, for those that don’t know, a budget is a list of the things you spend money on monthly as well as the money you receive. Seeing as most people’s bills come out on a monthly basis, it’s suggested that any budget you create is based on monthly incomings and outgoings.

How to Create a Budget

The first step in creating a budget is to add up your income for the month, including wages, pensions, business income, or benefits. In the instance that you’re paid weekly or 4-weekly, the best solution would be to multiply your weekly figure by 52 and then divide it by twelve. This should give you a calendar monthly figure you can include in your budget.

In a similar fashion, write all of your expenses down and use receipts and bank statements to get an accurate enough figure. Once you’ve done this, subtract your expenses from your earnings. This will tell you whether you have a ‘budget surplus’ which is when you have excess after expenses, or whether you have a ‘budget deficit’ which is when you’re spending more than you earn.

What is a Loan

A loan is something that’s very common in today’s society. It’s essentially an agreement between a lender and borrower which could involve money, assets, or anything else. The nature of every loan is different, but common themes you’ll find are interest and collateral. 

Different Loan Types

There are different factors that influence the type of loan you go for. However, here are a few you may find helpful.

Special Considerations for Loans

Interest rates can significantly affect how much you end up paying back on loans. When you take out a loan with a high interest rate, your monthly payment will be higher or it could take longer to pay off than one with a low interest rate. A good example is if you borrow £5,000 on an instalment or term loan, with a 4.5% interest your monthly payment may be around £93.22 for the next five years. In contrast, if the interest rate is 9%, the payments could increase to £103.79.

Secured vs. Unsecured

Another important type of loan to think about is secured vs. unsecured loans. A secured loan refers to one where the loan is secured by collateral like a mortgage or car loan. Unsecured loans, however, don’t have collateral but have higher interest rates instead.

Revolving vs. Term

If you want a loan that can be spent, repaid and spent again, then a revolving loan may be good for you. A term loan, however, is paid off in equal installments over a set period. Practical examples are a credit card which would be a revolving loan while a mortgage is known as a term loan.

For more information on budgeting or loans, reach out to Castle Finance on Linkedin.