Guest post by Robin Underwood
As a young creative, it’s challenging to strike the balance between maintaining your lifestyle and being financially pragmatic. The last thing any freelancer or small business owner wants to dwell on is a far-away retirement plan or university tuition for future children.
However, there are small steps that you can take to begin the slow process of knitting yourself a financial safety blanket that can keep you warm if the going gets rough.
Living life on a budget in London isn’t always easy but with these tips, you set yourself up for a future that’s more financially free. If you stop putting off these financial tasks, you’ll leave future regrets in the dust.
Set S.M.A.R.T Goals
The first step in your journey towards completing those dreaded yet important financial tasks is to set specific, measurable, achievable, relevant, and time-bound (SMART) goals. Having a clear understanding of what you want will highlight the steps that you need to take on the path towards achieving this.
If you’re not yet sure what you are aiming for or what is a realistic goal to set, remember that these aspirations are subject to change.
Don’t rush this initial step towards completing your financial tasks, it will lay the foundation for your relationship with money going forward. Give it the attention that it deserves.
Get Comfortable with Budgeting
The first and foremost component of your SMART financial goals should be a carefully structured budget. Monitor your monthly spending to get an idea of what a realistic budget would be before attempting to hold yourself to unreasonable expectations.
Once you have a general sense of your monthly expenditures, you can allocate a set amount of money for groceries, entertainment, toiletries, and transport, etcetera.
Note here that it’s important to identify your relevant spending categories and divide your overall budget appropriately.
There are many apps that can simplify and visually represent this tracking process, making it easy to manage your personal and freelance or business expenses and budgeting. If you become budget savvy, before long it will become second nature to know exactly where you stand financially.
Start Investing ASAP
If you want to save money from an early age by placing it in an account that will allow it to grow, savings accounts are not always the most ideal option. This is because the majority offer a minimal interest rate that, when you’re young and saving relatively small increments of money, won’t generate any sort of substantial profit.
This is why we would recommend that you do your research—perhaps even find a financial advisor or speak to friends and family that you trust—and start a relatively conservative investment account. You’ll find that the interest rates on these are significantly higher and when done with the right company, there is minimal admin that you have to complete once your account is set up.
Save, Save, Save
Albeit we just mentioned that savings accounts don’t always offer the greatest interest rates, they have their own perks. If you’re not too concerned with the growth of your money as much as you are with not spending it, it’s certainly worth opening a savings account.
One of the main pros of this option is that, unlike an investment account, your money is easily and, to an extent, instantly accessible. This means that if you need to dip into your nest egg, you can withdraw the bulk of that money whenever you choose.
As a freelancer or small business owner, cash flow is crucial, so having easy access to an emergency fund can be a lifesaver. Plus, your income may differ from month to month so having access to extra cash is crucial.
Generate a Passive Income
The ability to earn substantial amounts of money for minimal to no labour is just about every young creative’s dream. Although generating a passive income might require an active start, it’s certainly worthwhile in the long run.
One of the most popular means of doing this is through creating space for some form of rental income. If you feel the current market allows for it, you might choose to take on the lease for your house-share and markup the price of the other rooms. This will drastically decrease your own rent, which is typically one of your primary monthly expenses.
Alternatively, use your creative talents and see if you can come up with other ways to generate passive income. Photographers can sell digital prints, freelancers can write ebooks or online courses, musicians can sell their music and so on.
When you make passive income, it’s important to treat it like any other business income. Don’t fall into the trap of spending extra money just because you have it. Using accounting templates can help you keep track of all revenue and profits so that you know exactly how much income you’re generating on the side.
Make Debt Repayment a Priority
If, from an early age, you ensure that your debt returns to zero at reasonable intervals, you can avoid paying off a giant lump sum later on in life. Having a good track record with debt repayment will also make it easier for you to take out loans in the future, as you appear to be a responsible and trustworthy candidate.
If you don’t want the fear of rejection hanging over you when making large purchases, make a habit of prioritising debt repayment today. Being largely debt free will also make you a more attractive prospect if you look for investors to help you scale up your small business.
Pay Off Your Credit Cards
According to financial advisors and banking experts, your repayment history is the primary factor that determines your credit score. This means that the quicker you can repay your debt, the more trustworthy you appear to banks. They will then reward you with a lower credit score, which can ultimately save you a lot of money in the long run.
The second most important factor in deciding your credit score is your credit utilisation. This refers to the ratio of credit that you are utilising. In short, keep your debt as little as possible by paying it off at regular intervals.
By avoiding these simple mistakes and tackling these tasks head on, you’ll set yourself up for a financially sound future. Don’t let regret plague you, take charge of your finances now.