Setting up your business so you can save too
Taking a salary
January 2021

Setting up your business so you can save too

Saving can often be an afterthought when you're freelancing and have a fluctuating income. But it doesn't have to be - discover some money saving habits in this article.

Jade Phillips
Jade Phillips
Senior Marketing Manager at Coconut
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If you’ve considered going freelance full-time, or have just started your business, one thing that may be on your mind is how you’ll manage to save regularly when your income isn’t fixed anymore.

It’s easy to feel panicked at the idea that when you move to variable earnings you’ll fall into a kind of boom or bust spending cycle making it difficult to commit to making investments.

So what’s the best way to do it? What’s the smart way to prioritise this when it’s so easy to get swept up in the day-to-day and leave pensions, savings and plans for the future on hold?

The key is to separate the business from the personal – and to give yourself a clear view of what you’ve got left each month to spend, reinvest or move to savings.

Open a business bank account 

If there was one golden rule for managing your freelance finances it would be this – open a separate account for your business income and expenses. 

If you’re a sole trader, you’re not legally required to have one, but a separate business account gets rid of so much potential muddle and anxiety; allowing you to keep your business income, tax and expenses apart from your living expenses and spending/saving plans.

Work out how much you need each month based on your living expenses

One way you can do this is to work out your baseline. It’s what you need to earn to get by and is made up of rent/mortgage, utilities, pension scheme, childcare, groceries. You can then add to this the cost of some monthly extras - things you could do without if you really had to (say yoga classes and Netflix). Add these together and make that your minimum salary.

Or if you’ve been freelancing for a while, you could decide to just pay yourself the amount you earn in a quiet month. Or you could divide your annual earnings by twelve and go with that figure - though both of these routes will probably mean you’re taking a bit more from your business than you strictly need.

Pay yourself this salary each month

Set up a monthly standing order to pay this baseline salary from your business to your personal account. You can then review the amount every year (or every quarter) and adjust it.

Paying yourself a bare-minimum like this can help take away the anxiety you may feel about moving to unpredictable earnings; meaning you're in a far better position to decide what you can invest back into the business, move to personal savings plans - or just choose to spend.

Prioritise putting money away

It may seem obvious, but you want to prioritise putting money away regularly so that it’s baked-in to how you operate; up there with saving for tax.

Don’t think of it as something you’ll do when your ship comes in – or in more real terms, when you get paid for that big job that’s a few months’ away. 

Because, in all honesty, you may not do it. You’ll have worked that hard for the money, by then there’s bound to be an essential purchase for the business, or a well-deserved spend on yourself (or your family), to tempt you.

It’s much better to set up a regular standing order from your account into a savings or investment account (or similar) so you’re always putting something - however small - away. Of course, you can add to this in good times but the key thing is to have a saving commitment as part and parcel of how you operate as a freelancer.

Keep an eye on the best savings and investment options

If you’re not sure of the best investment or savings options for your situation, you may want to play it safe and get reputable advice from sites like MoneySavingExpert. 

Bear in mind how long you want to lock the money away for and keep an eye online and in the finance pages for changes in interest rates so you can move your savings around to always get the best returns. 

Also, don’t forget that the ISA deadline is midnight on the 5th of April so if you’ve been putting earnings into an ISA you’ve got until then to add to it and make the most of this year’s tax free allowance.

Put tax aside as you earn

As a general rule of thumb, putting a third of what you earn away for tax is a good idea. It’s probably better to over-save and have more than enough for your annual return, than under-save and have to pay out more than you were expecting at the end of the year.

Pay your tax on time

At the most basic level, your main tax concern is having enough money for when the tax bill is due - you don’t want to take from your savings to pay your tax.

But you also want to avoid any fines from HMRC due to miscalculations or late payments. So, get your self-assessment tax return completed in good time and before the 31st January each year so you’re not wasting money with late fees.

We recommend talking to an accountant when it comes to tax returns and accounts. They will make sure you're not overpaying on tax and you can get everything sorted in good time.

Keep your emergency fund intact

When you first set up on your own, it’s a good idea to have an emergency fund of about three months’ living expenses. Keep it separate from any other savings or investments and whenever you use it, try to pay it back as soon as you can.

It’s best not to think of this money as savings. Instead, keep it as a business back-up fund that you can use without having an impact on personal savings plans.

Put simply, as a freelancer, the best way to get on top of savings is to have separate business and personal accounts, pay yourself a salary and keep an ongoing, accurate tally of tax and expenses. And make it a priority to set up a regular savings plan that means you’re putting something away each month, however small.

In this way you’ll have clarity over your earnings and can make clear-eyed decisions about what to do with any extra you earn in the busy months - without waiting on those busy periods to save at all.

You can then start to build up your savings and make longer term plans for your business - and for life outside of work.


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Coconut is the trading name of Coconut Platform Ltd, company number 09904418. Coconut is registered with the Financial Conduct Authority (FCA) as an Account Information Service Provider under the Payment Services Regulations 2017 (reference 931194).

Coconut provides some customers with a business current account, but is not a bank. The Coconut current account is an e-money account provided by Prepay Solutions (PPS), a trading name of Prepay Technologies Ltd, which is an electronic money institution authorised by the FCA under the Electronic Money Regulations 2011 (reference 900010) for the issuing of electronic money.

PPS holds all funds in a safeguarded account in accordance with the Electronic Money Regulations 2011 which protects customers against Coconut or PPS’s insolvency. The Coconut Mastercard is also issued by PPS pursuant to a licence by Mastercard International.