Money Makeover: managing money when self employed

The third Absa/City Press Money Makeover kicks off early next year and the call to enter is out. Each year, six readers are invited to sign up for a six-month financial wellness bootcamp to turn their finances around. Freelancer Tamsin, one of this year’s contestants, learnt how to manage the rollercoaster ride of earning an irregular income.

Money Makeover: managing money when self employedFreelancer Tamsin found herself in the classic self-employed trap of living from feast to famine depending on her income. During good months she would spend and in bad months end up relying on her credit card to make ends meet.

As a freelancer in the film industry she was used to receiving large, irregular lump sums rather than a regular salary. “The film industry has for most of my career dropped large and intermittent sums of money into my bank account giving me the illusion of wealth and success. Although I had known this all along, and managed to ignore this, I was living well above my means,” she says. As a result, she had accrued significant credit card debt.

During the six months of the Absa/City Press Money Makeover challenge she worked on organising her finances so that she could recreate a more sustainable income. She achieved this with the help of her Absa adviser Leighanne Decker.

Separating business and personal finances

Tamsin’s first action was to get her business and personal finances separated and to create a cashflow model that allowed her to pay herself a regular monthly income. Tamsin created a budget so that she understood how much it was costing her to live and what salary she needed to earn.

Tamsin created a contingency “salary fund”. By the end of the six-month challenge she had five months’ salary put away which allows her to smooth her income during ‘down’ times. She was also able to pay herself a proper salary at the start of each month rather than drawing down from the business during the month.

Tamsin built up a personal emergency fund to cover those unexpected bills that are over and above her budgeted living expenses. Her adviser recommended that she keeps this separate from her “salary fund” as this is for unexpected expenses, not a shortfall in salary.

Tamsin also needed to create a “tax fund”. While her income from her film work was taxed at source, it did not take into account the income she received from her AirBnB and web design business.

Managing tax

One of the most common problems with self-employed people with multiple streams of income is that at the end of the tax year they find that they are in a much higher tax bracket and land up with a tax bill they were unaware they would have to pay.

“This is prevalent in the market where people have retired, have a pension, and they return to contract work and are now earning an additional income, plus they have interest-bearing investments,” says adviser Decker who recommended that Tamsin open a “tax savings” account to ensure that the right amount of tax is put away and readily available when that tax bill comes in.

Part of managing tax was to understand Tamsin’s potential tax deductions. One of the benefits of being self employed is that any expenses incurred in producing an income can be deducted for tax purposes. If you work from home you can deduct up to 20% of mortgage interest as ‘rental’ or if you are earning  rental income from a property, you can deduct the full monthly interest portion.

Decker identified that Tamsin was not utilising her travel expenses. “By tracking her business orientated mileage she can receive a tax deduction for travel expenses, including the interest she is paying on her car loan.  She can get a healthy tax deduction, as long as she maintains a logbook,” says Decker.

Tamsin also used a retirement annuity which is a great tax deduction and funds your retirement. As committing to a monthly contribution was difficult based on her variable income, Decker advised her to top up before 28 February when she can calculate her tax rate and what additional funds she had available.

By the end of the six-month challenge Tamsin not only had a better handle on her finances and had built up her salary fund but had also paid off R15 000 of debt. “The budgeting process helped me to stop being an impulsive spender and to stick to a strict budget”.

If Tamsin’s story resonates with you and you are ready to commit and take the challenge, the Absa/City Press Money Makeover Challenge is once again open for applications. There are only six places available so only the most committed applicants will be considered.

Absa/City Press Money Makeover logoThe competition runs over a six-month period and the six selected participants will receive expert help to get their finances in order and achieve their unique financial goals.

During the six months, each eligible participant will stand a chance to win incentive prizes upon reaching certain pre-agreed milestones.

At the end of the Challenge, a cash investment prize will be awarded to the participant who best managed to remain on track and successfully realised their financial goals during the period.

The competition will run from February 2020 to August 2020.

All applicants need to meet the following criteria:

  • Must be over the age of 18.
  • Must have a transactional account with Absa wherein they deposit their monthly salary.
  • Must earn a monthly salary/income of R20 000 or more (this can be a variable income if you are self-employed or a freelancer). Entrepreneurs with a small start-up business are welcome to enter.
  • Must not be over-indebted to such an extent that they are blacklisted with legal action taken against them in terms of their debt.
  • Must not currently be under debt review.
  • Must be prepared to be filmed, have their photograph taken and have their first name appear in City Press and the social media channels of Absa and City Press.
  • Must commit to a 6-month personalised financial fitness programme
  • Must successfully complete all the tasks and reach all the goals assigned to them.

If you would like to participate, send your responses to the following questions to us by no later than 25 October 2019.

  • Why would you like to participate and what do you hope to achieve should you be selected to participate?
  • What are your main financial pressures at the moment?
  • Are you married and do you have children?
  • What keeps you awake at night?
  • What has been your worst financial mistake?
  • What is your big dream?

Also send your full name and surname, age, region ID number, Absa account number as well as your current monthly budget (income and expenses) to Closing date is 25 October 2019.

To find out more about the Absa/City Press Money Makeover Challenge you can read about last year’s contestants on the City Press website.

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