Join us for a live 30 minute webinar on 27 June at 12:00 with Victoria Lympus and Simon Gladding
Your chance to get practical, no-nonsense advice on managing self-employed finances. Want to know how to manage your income, set up your pension, and protect your future? We’ll show you how.
Authors – Victoria Lympus and Simon Gladding
Being self-employed comes with plenty of rewards – flexibility, freedom and the ability to do work you truly care about. For women, these benefits can be especially meaningful: more time with family, control over your schedule, and the chance to break free from traditional workplace constraints. It’s no surprise that women now make up almost half (46%) of the freelance workforce, with 15% being working mums.
But let’s not sugar-coat it – self-employment also brings unique challenges. While we can’t fix unreliable clients or help you find someone to chat with by the metaphorical watercooler, Women’s Wealth is here to help with the financial side of freelancing.
What is variable income?
If you’re self-employed, you’ve probably experienced the feast-or-famine nature of freelance income. One month you’re pulling late nights to meet deadlines, and the next you’re staring at an empty inbox. This unpredictability can make budgeting and planning for the future a challenge. How do you save for a holiday, make investments or even feel secure in your day-to-day expenses when your income fluctuates?
The key lies in building financial systems that work with your variable income – not against it.
How to budget with a variable income
1. Separate business and personal finances
This isn’t just best practice – it’s essential. Keeping your business and personal accounts separate simplifies your tax returns, helps you track cash flow accurately and makes it clear what belongs where. Yes, it might be tempting to use one card for everything (it’s all your money, right?) – but resisting that urge will save you headaches down the line.
2. Know your numbers
First things first, you need to know what you are spending your money on. Some expenses you will be able to see leaving your bank account each month, others you will need to track as they are ad hoc (for example, trips to the optician, car maintenance or gifts). Start by collating those you know or can guess at to get a rough picture and then monitor them on a monthly basis. You can use a piece of paper, a spreadsheet or apps such as snoop or moneyhub to help you do this. Over time, you’ll develop a clear and reliable picture of your financial landscape.
3. Categorize essentials and non-essentials
Divide your expenses into essentials (a.k.a. ‘needs’) and non-essentials (a.k.a. ‘wants’). Essentials include your basic living costs – rent/mortgage, bills, food; non-essentials are everything else – nights out, beauty treatments, holidays.
Prioritize covering your essential spending from your business income each month. The rest can be managed more flexibly.
Saving with a safety net: build an emergency fund
What if one month you can’t pay yourself enough to cover essentials? That’s where an emergency fund comes in. We recommend self-employed individuals aim for 6 to 12 months of essential expenses in savings.
Why so much? Because quiet months, illness, family emergencies – or even a broken boiler – can throw your finances into chaos. This fund acts as your buffer.
Spending smartly: use a proportional system
What if things go well? Maybe you get paid for several big projects at once. Great! But now you may feel unsure about how to allocate it.
We recommend using a proportional budgeting model – it removes the guesswork and helps you strike a balance between spending today and planning for tomorrow.
There are various models of this, the most common of which is: 50/30/20
- 50% Essentials
- 30% Spending
- 20% Saving
At Women’s Wealth, we see a distinction between saving (for the short term) and investing (for the long term), so we might amend this to: 50/30/10/10
- 50% Essentials
- 30% Spending
- 10% Saving
- 10% Investing
As you have already covered your essentials, this means that you divide the proportion of what is left like this:
- 60% Spending
- 20% Saving
- 20% Investing
You can tailor this depending on your goals. Building an emergency fund? Prioritize saving. Already have one? Consider investing more for the long term.
Putting it all together: sample cash flow plan
Here’s what managing your freelance income might look like in practice:
- Income received: Payment hits your business account
- Set aside tax and National Insurance: Transfer what’s due into a business savings account (see below)
- Cover essentials: Transfer a set amount into your personal account for monthly essentials
- Allocate the rest: Divide any remaining funds into your spending, saving and investing pots
You can be in control of your finances – even with a variable income – by making
conscious decisions about what you want to do with your money and then putting systems in place to make that happen.
What taxes do the self-employed pay?
If you earn over £1,000 from self-employment in a tax year, you’ll need to register for Self Assessment via gov.uk and pay tax on your profits (income minus allowable expenses).
Income Tax Rates for 2025/26:
- 0% – Up to £12,570
- 20% – £12,571 to £50,270
- 40% – £50,271 to £125,140
- 45% – Over £125,140
National Insurance Contributions (NICs): Class 4 NICs (Mandatory):
- 6% on profits from £12,570 to £50,269
- 2% on profits over £50,270
Class 2 NICs (Voluntary or Automatic):
- £3.45/week if your earnings are below £6,725 (voluntary)
- Automatically credited (at no cost) if between £6,725–£12,569
Paying voluntary Class 2 NICs can help maintain entitlement to the State Pension, Maternity Allowance, and other benefits. It’s a small cost for valuable long-term security.
How do self-employed pensions work?
If you are employed, your employer is legally obliged to offer you a pension. If you are self-employed you will need to set up your own pension.
This isn’t as difficult as it might sound. Don’t put yourself in a position where you are at a disadvantage to your employed friends. Your pension is likely to be the biggest asset you will every own and thinking about this now will bring you options later in life.
Why would you want to give up access to your money by paying it into a pension? If you pay money into a pension, you will pay less tax. As a self-employed person, you can benefit from the tax breaks on pension contributions, too.
Basic rate tax relief on pensions means that if you pay £80 into a pension from your post tax earnings, the government will top it up to £100. That’s a 25% bonus on the money you paid in. If you are a higher or additional rate taxpayer the tax breaks are even more generous. These bonuses will help you to get to the point when you achieve financial security more quickly.
It can be hard to know where to start with setting up a pension, in the next section we’ll cover how to set up a pension.
How to set up a self-employed pension plan
You can set up your own pension using a retail investment platform just like you can set up a stocks and shares ISA. If you are doing this yourself you should focus on finding a secure platform, that has low costs and offers a range of investment options.
Once you’ve set up a pension plan, you can contribute to it from your post tax income. You will then get a 25% government bonus added to your pension investment account. If you pay tax at above the basic rate, you will get further tax relief by including your pension contributions on your tax return.
If you are self-employed via a limited company, your company can make contributions on your behalf and will usually pay less corporation tax as a result.
Once you’ve set up your pension, how should you choose an investment?
We have heard of people putting money into a pension account and then not investing it. Please don’t do this. Your pension is meant to be a place to keep your investments. These investments should aim to provide returns above the rate of inflation over the long-term.
How you invest your pension depends on a number of factors: your attitude to risk, how long you have until retirement, how much money you have. We obviously can’t offer you individual advice here, but this page on the Moneyhelper website offers a starting point.
How to manage financially if you have no work
The key to managing this is preparation and prevention rather than cure.
Have an emergency fund
The real key to coping financially if you find yourself with now work is to plan in advance for this tricky situation arising. The first building block that will provide you with protection against this situation is to have an emergency fund as discussed above. Having six months of your committed expenditure in cash provides you with a safety buffer should something happen that means the work dries up for some reason.
Consider protecting yourself against illness or injury with income protection insurance
A 35-year-old woman has a 46% chance of being unable to work for a month or more at some point in their career. 1 in 11 people will have to take a period of extended sick leave.
Do you have a plan for what you would do if you were unable to work due to illness?
It’s a shame to have your plans ruined by something that is outside of your control. These numbers show that being unable to work due to illness or injury is a risk that needs to be managed.
You can take out income protection insurance that protects you against being unable to work due to being unwell for an extended period.
The importance of diversification as a self-employed person
In an ideal world, you won’t be relying on one person or company for your income. One of the benefits of being self-employed is that you can choose who you work with. Ensuring that you are earning your income from a number of different sources can provide some protection against spells with no work.
It’s a challenge to find the right balance, but by thinking about this risk you will more likely find a way of working that protects you against stressful spells without enough work.
Final thoughts
Being self-employed offers incredible autonomy and fulfilment, but it also demands proactive financial planning. From budgeting with variable income to building an emergency fund, understanding taxes and setting up a pension, the financial foundations you lay today will support your freedom tomorrow.
If you are self-employed and need a best financial friend to help you create systems that work for you or set up a personal pension, book a free 15-minute discovery call to discuss how we can meet your needs: