Financing the start of your portfolio career may be a primary concern for many. I was contacted just this week in fact, by someone asking for advice on this very topic and I promised them a post on it. Here’s my take on what you need to consider and some tips for managing your portfolio career finances.
First of all, there’s no two ways about it; giving up a regular salary is seriously scary, especially when a big chunk of your income is earmarked for rent or a mortgage. You therefore need to work out the absolute minimum you need to be bringing in to cover this and your other basic living expenses. When I started out on this road, I made myself a simple Excel spreadsheet to work this out. When you do this, don’t forget costs like insurance; not just the various types that you pay already but those you might need depending on your portfolio (e.g. you may need indemnity/public liability for some freelance/consultancy work). Don’t be unrealistic either; it could be tempting to pare it down to make it seem more manageable – don’t – it will only come back to bite you later. Check websites like Money Saving Expert for tips and tools on how to sensibly reduce your outgoings. Things like cooking more from scratch can have a massive impact. Having flexibility in your work can allow you time for things like keeping an allotment and cooking more. Since I’ve been doing this it’s shaved hundreds off our annual food bills.
There are ways to more dramatically cut costs too if you’re willing. My first foray into portfolio careers, back when I was only a few years out of university, involved renting out a room. Doing this enabled me to halve the cost of my mortgage overnight. It happened in a moment of complete serendipity. I had been thinking about it but hadn’t taken any practical steps to make it happen. Then, one day sitting in a café opposite the British Library, a bubbly Australian just a few hours off the plane for a year-long adventure in London, asked me for directions. We got chatting and she mentioned she was looking for somewhere to stay – I told her I had a room available and that was that. I asked a colleague who worked in estates to help me draft a contract, a deposit was paid and we lived together for a year. She’s been back in Australia for many years now and is a valued lifelong friend.
When you start out, having a financial cushion really helps take the pressure off. I’ve always been a bit of a sensible little saver so I had enough stashed away to cover my expenses for several months if I needed it. I was very fortunate to have a supportive and encouraging husband whose salary kept us afloat in the early months of my more recent portfolio career move, so I didn’t need to dip into those savings. However, I believe that just knowing they were there were a real help in getting started. Having a cushion, should you need it, is a real confidence boost and I firmly believe will help you make more sensible decisions, be less likely to veer off-track by accepting work you don’t really want to do and prevent you from panicking and ending up back in the salaried rat race.
If a cushion isn’t an option for you, think carefully about how to partition up your portfolio instead, Could you find some regular part-time work or flex/reduce your hours in your current job to free you up to develop your other portfolio interests and still be enough to live on for a while?
On both occasions when I switched to a portfolio career, I was pleasantly surprised at how quickly my money-saving strategies to help me get started became redundant. Within six months of my first portfolio career move, I could have afforded for my Aussie flatmate to move out and within two months of my second portfolio career move, I didn’t need to rely on my husband’s salary anymore. If you’re wondering why I’ve adopted a portfolio career twice, it’s not because the first one didn’t work out by the way, it’s that the first one led to a very rewarding full-time role for a number of years and when that had run its course the portfolio life beckoned once more! I think the speed at which I was able to make portfolio careers work for me is largely due to following my heart and doing things that feel authentic – it’s far quicker and easier to be successful at things you feel motivated and driven to do than slogging away at things you don’t. Being your own boss is also a powerful motivator because it’s only you who will make things happen.
Managing your money isn’t only about starting up. Once you get going and you have income coming in from multiple sources, it can be very time-consuming to keep track off it all, particularly if, like me you have some income through an employer and several other sources of income for which you are self-employed. With the added complication of having a rental property, for me a decent accountant is a great investment. I’d advise opting for a fully qualified chartered accountant and consider looking for one who is also a chartered tax adviser. It’s very useful to have someone who will guide you through what are and are not allowable expenses and who makes you get your records in order. Mine insisted I open a separate bank account even before I had my first client and made sure I’d filled in all the right forms about national insurance contributions. Registering as self-employed was incredibly straight-forward; no more than a phone call.
A very handy device for keeping track of invoices, income and expenditure is creating dropdown lists in Excel spreadsheets so that you can quickly and easily mark each item as ‘personal’ or ‘business’ related. I also have a third category for property-related items and you might choose to have several if you are involved in more than one type of business. To do this follow these steps:
1. Enter your categories into the data cells e.g.: A1 - Personal, A2 - Business 1, A3 - Business 2
2. Select the cell where you would like results to be displayed
3. Click the Data tab
4. Select 'Data Validation' from the ribbon menu at the top of the page
5. In the dialogue box, click the settings tab
6. Choose 'list' from the 'allow' menu
7. In the dialogue box, click in the source line
8. Select cells A1 - A3 with your mouse
9. Click OK
10. A down arrow should appear next to the cell you selected to display results, click on it to choose from the categories. You can copy this to whatever location on your spreadsheet you wish to use it (e.g. the whole of a column headed ‘expenses type’).
Using this handy Excel feature means that come the end of the financial year I can quickly and easily sort by category to work out what needs to go where on my tax return. This saves me having to sift through bundles of receipts in a gruelling tax return administrative marathon. Much easier to just keep things in order as you go along and more tax efficient as you’re less likely to forget smaller expenses which all add up.
Managing your finances as a portfolio careerist needn’t be difficult. It’s just a case of setting up systems to help you keep on top of it.
First of all, there’s no two ways about it; giving up a regular salary is seriously scary, especially when a big chunk of your income is earmarked for rent or a mortgage. You therefore need to work out the absolute minimum you need to be bringing in to cover this and your other basic living expenses. When I started out on this road, I made myself a simple Excel spreadsheet to work this out. When you do this, don’t forget costs like insurance; not just the various types that you pay already but those you might need depending on your portfolio (e.g. you may need indemnity/public liability for some freelance/consultancy work). Don’t be unrealistic either; it could be tempting to pare it down to make it seem more manageable – don’t – it will only come back to bite you later. Check websites like Money Saving Expert for tips and tools on how to sensibly reduce your outgoings. Things like cooking more from scratch can have a massive impact. Having flexibility in your work can allow you time for things like keeping an allotment and cooking more. Since I’ve been doing this it’s shaved hundreds off our annual food bills.
There are ways to more dramatically cut costs too if you’re willing. My first foray into portfolio careers, back when I was only a few years out of university, involved renting out a room. Doing this enabled me to halve the cost of my mortgage overnight. It happened in a moment of complete serendipity. I had been thinking about it but hadn’t taken any practical steps to make it happen. Then, one day sitting in a café opposite the British Library, a bubbly Australian just a few hours off the plane for a year-long adventure in London, asked me for directions. We got chatting and she mentioned she was looking for somewhere to stay – I told her I had a room available and that was that. I asked a colleague who worked in estates to help me draft a contract, a deposit was paid and we lived together for a year. She’s been back in Australia for many years now and is a valued lifelong friend.
When you start out, having a financial cushion really helps take the pressure off. I’ve always been a bit of a sensible little saver so I had enough stashed away to cover my expenses for several months if I needed it. I was very fortunate to have a supportive and encouraging husband whose salary kept us afloat in the early months of my more recent portfolio career move, so I didn’t need to dip into those savings. However, I believe that just knowing they were there were a real help in getting started. Having a cushion, should you need it, is a real confidence boost and I firmly believe will help you make more sensible decisions, be less likely to veer off-track by accepting work you don’t really want to do and prevent you from panicking and ending up back in the salaried rat race.
If a cushion isn’t an option for you, think carefully about how to partition up your portfolio instead, Could you find some regular part-time work or flex/reduce your hours in your current job to free you up to develop your other portfolio interests and still be enough to live on for a while?
On both occasions when I switched to a portfolio career, I was pleasantly surprised at how quickly my money-saving strategies to help me get started became redundant. Within six months of my first portfolio career move, I could have afforded for my Aussie flatmate to move out and within two months of my second portfolio career move, I didn’t need to rely on my husband’s salary anymore. If you’re wondering why I’ve adopted a portfolio career twice, it’s not because the first one didn’t work out by the way, it’s that the first one led to a very rewarding full-time role for a number of years and when that had run its course the portfolio life beckoned once more! I think the speed at which I was able to make portfolio careers work for me is largely due to following my heart and doing things that feel authentic – it’s far quicker and easier to be successful at things you feel motivated and driven to do than slogging away at things you don’t. Being your own boss is also a powerful motivator because it’s only you who will make things happen.
Managing your money isn’t only about starting up. Once you get going and you have income coming in from multiple sources, it can be very time-consuming to keep track off it all, particularly if, like me you have some income through an employer and several other sources of income for which you are self-employed. With the added complication of having a rental property, for me a decent accountant is a great investment. I’d advise opting for a fully qualified chartered accountant and consider looking for one who is also a chartered tax adviser. It’s very useful to have someone who will guide you through what are and are not allowable expenses and who makes you get your records in order. Mine insisted I open a separate bank account even before I had my first client and made sure I’d filled in all the right forms about national insurance contributions. Registering as self-employed was incredibly straight-forward; no more than a phone call.
A very handy device for keeping track of invoices, income and expenditure is creating dropdown lists in Excel spreadsheets so that you can quickly and easily mark each item as ‘personal’ or ‘business’ related. I also have a third category for property-related items and you might choose to have several if you are involved in more than one type of business. To do this follow these steps:
1. Enter your categories into the data cells e.g.: A1 - Personal, A2 - Business 1, A3 - Business 2
2. Select the cell where you would like results to be displayed
3. Click the Data tab
4. Select 'Data Validation' from the ribbon menu at the top of the page
5. In the dialogue box, click the settings tab
6. Choose 'list' from the 'allow' menu
7. In the dialogue box, click in the source line
8. Select cells A1 - A3 with your mouse
9. Click OK
10. A down arrow should appear next to the cell you selected to display results, click on it to choose from the categories. You can copy this to whatever location on your spreadsheet you wish to use it (e.g. the whole of a column headed ‘expenses type’).
Using this handy Excel feature means that come the end of the financial year I can quickly and easily sort by category to work out what needs to go where on my tax return. This saves me having to sift through bundles of receipts in a gruelling tax return administrative marathon. Much easier to just keep things in order as you go along and more tax efficient as you’re less likely to forget smaller expenses which all add up.
Managing your finances as a portfolio careerist needn’t be difficult. It’s just a case of setting up systems to help you keep on top of it.
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