This week on The Vault, we were joined by one of the most inspiring (and hardest working) women we know – broadcaster Natalie Pike.
If you’ve watched Man City’s matchday show, caught her reporting for CBS or spotted her trackside at the races, you’ll know her. What you might not know is that when Natalie went freelance in 2020, her marriage had just ended, she had a two-year-old at home and she’d signed for a mortgage on her own. Oh, and it was the middle of lockdown.
Her dad’s reaction when she told him she was quitting her job? “Yeah, okay.” (We love him.)
Six years on, she’s got six months of savings, a pension she pays into and a system for her money that any freelancer can steal. Here’s how she does it – and how you can budget when you’re self-employed too.
Why doesn’t normal budgeting work when you’re self-employed?
Most budgeting advice assumes the same amount lands on the same day every month. When you’re freelance, it doesn’t. You might have a bumper month followed by a month of chasing invoices (Natalie says the chasing is constant).
You can still budget without a fixed paycheck – you’ll want a different system, that’s all. There are two that work.
Method one: work a month behind
With this one, you only ever budget with money that’s already in your account. What came in last month funds this month, so a quiet few weeks won’t throw everything off.
To get started, you’ll need one month of expenses saved as a buffer. Once that’s there, the gaps between invoices feel a lot less scary.
Method two: the waterfall budget
This is the one Natalie lives by. Start with your bare minimum – what you need each month to keep the lights on. Then, every time money comes in, it flows down in this order:
- Needs – mortgage or rent, bills, childcare
- Sinking funds – your tax pot, emergency fund and anything coming up
- Business costs
- Flexible spending
Before Natalie quit her job, she worked out her bare minimum to the last penny. Her radio show covered around £2,100 a month before tax, which left her about £1,200 short. She knew what the gap was, felt okay with it and said yes to everything until she’d closed it. Know your numbers, Playbook style.
She also knew there’d be no football (so no work) in June and July. So she saved £6,000 across the year to cover those two months – a sinking fund doing exactly its job (our sinking funds guide walks you through setting one up).
The one thing both methods need: a tax pot
Whichever method you go for, your tax needs its own home the minute you’re paid. A good starting point is 25-30% of everything you earn.
Natalie puts away 35% of every invoice. She’s VAT registered now too, so the VAT she charges goes into a separate pot. In her words: “The money gets paid into your bank and that’s not your money.”
Her tax pot lives in a high-interest savings account, and she pays HMRC on the deadline, so that money earns interest for her right up until it’s due. (She says she picked that one up from us. We’re very proud.)
And an emergency fund that actually feels safe
No sick pay, no holiday pay, no employer pension – that’s freelance life. Your emergency fund is what fills the gap, and three to six months of living expenses is a good goal.
Natalie started with one month. Then she asked herself what would actually make her feel safe, and landed on six months of the life she lives now (meals out and all), tucked away in a cash ISA. “Not stocks and shares, because I’m not that brave,” she told us. (We’re working on changing her mind about that!)
You don’t need a fixed income to know your numbers
If you’re freelance already, or thinking about taking the leap, start where Natalie did. Work out your bare minimum, pick a method and set up your pots.
And the one thing she’d tell her 21-year-old self? Get on top of your money young, and believe in yourself a little bit more.
So, do you know your numbers to the penny?
Listen to Natalie’s full episode of The Vault on Spotify, YouTube or wherever you get your podcasts.
This content is for general information only and does not constitute financial advice. If you need advice tailored to your personal circumstances, please speak to an authorised financial adviser.