Should you outsource your lunch?

You won’t often hear a financial coach advising you to spend more money. There are some instances, though, where splashing the cash is the answer. For me, it’s for anything that saves time.

Of course, it’s important to keep a careful eye on money, but our time is even more valuable. Although it might not feel like it, money is a renewable resource – if we lose some, we can usually find a way of getting it back again. Time, conversely, is absolutely finite.

Consult any guide on saving money and it’ll undoubtedly recommend taking a packed lunch to work. I’ve tried this myself, with the following results:

  • I spent extra time buying groceries for the office – and I really hate shopping
  • Being greedy, I found it very hard to generate leftovers from dinner. I also didn’t want to lug a sweaty lasagne to client meetings or workshops
  • If I did organise myself to bring a cheese sandwich, I’d eat it by 11am. Then I’d buy a second lunch later in the afternoon.

A significant chunk of my headspace was occupied with lunchtime logistics. I’ve now accepted the need to outsource my lunch. This saves me valuable time, I enjoy a wider range of food, and it makes me get off my bottom and go outside.

Admittedly, I’m in a fortunate position of having the money to spend on lunch. Even if you’re on a tighter budget, buying your lunch once a week might free up a block of time and provide a well-deserved treat.

Maybe lunch isn’t a problem. Are there other areas where you could invest some money and receive a time dividend? Getting a cab? Having groceries delivered? Hiring a freelancer?

If you want more money, first you need to carefully consider how you spend your time.

How to Spend Less Money on Amazon

My clients are all completely different, but most have one thing in common: they buy too much stuff on Amazon. A big chunk of money is going to Mr Bezos each month and they feel as though they’re not in control. I’m not immune to this, either. I absolutely loathe shopping and embrace anything that relieves me of the tedium.

One of the reasons for Amazon’s popularity is that they make it so easy for us to order things. We need only imagine something, then it’s in our hands 24 hours later. The company has invested millions of dollars in making the transaction completely frictionless. We don’t feel any discomfort, at least until the credit card bill arrives.

In the meantime, there’s a dopamine hit from spending the money, followed by anticipation of the item’s arrival, then the excitement of tearing off the packaging and popping those little airbags.

How can we protect ourselves? Well, that depends on your character. Here are five tips for you to try:

1. Go cold turkey

Dr Johnson famously found abstinence easier than temperance, but it’s not for everyone. Even just a week of not buying anything on Amazon might break the spell and make you more aware of your habits. This is harder if you don’t live or work near any shops. Despite living in a city centre and being very self-disciplined, this one doesn’t work for me.

2. Buy yourself a gift certificate

Gift certificates aren’t just for our loved ones – we can buy them for ourselves, too. This way, you can set a specific amount to spend each month.  Make sure, though, that you remove other stored payment methods, otherwise it’s easy to accidentally exceed your budget. This approach was moderately successful for me, but it made me feel very frustrated.

3. Remove your stored payment cards

One-click ordering is convenient, but it’s an absolute menace if you’re trying to cut your spending. Typically, we buy stuff when we’re tired, annoyed, or overly refreshed – the lack of any obstacles and reduced cognitive abilities make that big purchase seem like a good idea. Would you still want those novelty oven gloves if you had to go and rummage upstairs for your credit card? Probably not. Make it harder for yourself and see what happens. For many of us, laziness will triumph over acquisitiveness.

To make it even better, pop a sticky note on your credit card to remind yourself what you could be doing with that money instead, e.g. retiring before you’re 93.

This tip drives me mad, but it’s very effective.

4. Keep a list of what you want and only buy them at the end of the month

It’s quite likely you won’t still want all those things. The passage of time is great for a sense of perspective. That sugar thermometer doesn’t seem as vital once The Great British Bake Off has finished. You’re not denying yourself anything, it’s just that you can’t have it immediately.

This technique is the most effective for me, although I really struggle when it comes to anything technology related.

5. Make a rule that you can have those things, but you have to buy them from local shops

You can still have the stuff, but this time you’re forsaking the convenience of Amazon. Of course, this is also the virtuous option, as you’re supporting local businesses. As with Tip 1, its success relies on your having access to decent shops. Although I live in a city famed for its shops, I can seldom find anything I want – but then I usually want complicated microphone stands and ebooks about pension forecasting. I do have a rule about buying music from the local record store, though. It’s always a pleasure to visit Resident Records – the staff are knowledgeable and friendly, and they’ve got everything you could possibly want.

To make this one easier, you could cancel Amazon Prime. If you had to pay for delivery or wait a bit longer, Amazon would lose some of its allure.

We’re all different, so experiment and see what works for you. It might even be a combination of a few tips. Please do let me know how you get on in the comments below.

How do I pay National Insurance as a Sole Trader?

It’s not often I see fear in a client’s eyes. This happened recently, though, when I casually mentioned National Insurance. The chap concerned had just gone freelance, after carefully planning his transition from employee to free spirit. Somehow, in all the excitement, a crucial element had escaped his notice. Understandably so, I think. After all, nobody who creates a business has a burning desire to understand the National Insurance (NI) system. However, a basic knowledge of how NI works, and what you need to pay and when, will help you now and when you reach state retirement age.

In this post, I’ll explain this unnecessarily complicated tax and also share some tips on paying it if you’re self-employed.

What is National Insurance?

When it was first introduced in 1911, National Insurance was indeed an insurance scheme. Contributors were rewarded with payouts if unable to work or once they’d reached the state retirement age (70, at the time). The method of recording contributions was through stamps affixed to a card, which is why you’ll sometimes hear people refer to paying your stamp.

It’s since become far more sophisticated and there are now six types of National Insurance contribution. Thankfully, as a sole trader, you need only concern yourself with two of them:

Class 2 National Insurance

This is a fixed weekly amount of £3, regardless of your income. You’re not obliged to make Class 2 contributions unless your profits1 exceed £6,365. Nevertheless, it could be worth making voluntary Class 2 contributions. Why on earth would you pay more tax than necessary? Well, because this affects your state pension entitlement. To qualify for the full state pension, you need to have made 35 years’ NI contributions. Any gaps reduce the amount you’ll receive. So, paying £156 per year now could boost your income significantly in the future. Additionally, you need to have made Class 2 contributions to be eligible for other benefits, such as Employment and Support Allowance (the only sick pay you’re entitled to as a sole trader).

Class 4 National Insurance

These contributions behave more like a tax. Class 4 contributions are paid as a portion of your profits, so what’s left over once you’ve deducted any allowable expenses from your turnover. You’re liable for Class 4 NI payments if your profits exceed £8,632. You’ll pay 9% on profits from £8,632-£50,000, and 2% on profits above that amount. These contributions aren’t linked with state benefits.

To recap:

  • Class 2 if your profits are £6,365 or more a year and
  • Class 4 if your profits are £8,632 or more a year
  • You pay £3 per week (£156 per year) for Class 2 and
  • 9% on profits from £8,632 – £50,000 for Class 4. It drops to 2% on profits above £50,000.

How do I pay National Insurance?

Fortunately, this part is straightforward – and you no longer have to collect stamps on a card. Both Class 2 and Class 4 contributions are paid along with income tax through your self-assessment tax return. As you probably know, this is due by 31st January – both the return itself, and your payment.

You stop paying any NI contributions once you reach state retirement age, although you’re still liable for income tax.

How can I calculate my National Insurance liability?

The best way to deal with tax returns is to prepare well in advance. The tax year ends on 5th April, so you have almost 10 months to do some calculations and start saving, if you haven’t already put some money aside. StepChange has created a useful online calculator to give you clarity on what you’ll need to pay. For example, if your turnover is £30,000 and your business costs are £2,000, you’d pay:

  • Class 2 – £156
  • Class 4 – £1743.12
  • Income tax – £3099.96

That’s a total of £4999.08.

Screenshot of sole trader income calculator

As a sole trader, your income probably fluctuates. It’s worth using this calculator each month to ensure that you’re not taking too much money out of the business. Nobody enjoys saving for tax, but a monthly sacrifice is better than a big bill just after Christmas. Remember, Class 2 contributions are fixed at £3 per week, so it’s easy-peasy to budget for this amount. Think of it as an annual subscription of £156 that you pay every January.

Conclusion

The Government has promised to overhaul National Insurance and a review is currently in progress. Given everything else that’s going on, this is unlikely to be a priority.  In the meantime, using the calculator and setting aside your £156 should keep you on track. And you might even get a state pension when you’re 95.

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Key Points

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    You pay Class 2 and Class 4 NI contributions through your self-assessment tax return.
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    Class 2 NI contributions help you qualify for the state pension and other benefits, such as Employment & Support Allowance. It could be worth paying these contributions voluntarily, even if you haven’t reached the profits threshold of £6,365. The annual amount is £156.
  • Calculating your NI and tax liability each month can help manage your cash flow and avoid surprise bills in January.
  1. turnover minus allowable expenses [↩]
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