Tracking your income and expenses

Finmo
Your taxes sorted.
30 March 2021
3 minute read

Why doing this throughout the year is one of the best money moves you can make

As a busy self-employed professional, it can be easy to put off thinking about tax.

But making a little bit of effort to track your finances throughout the year can majorly pay off in the long-run (and lead to a lot less effort later down the line).

Luckily, there are tons of great tools and apps out there to help you keep things streamlined. That might involve getting a GPS mileage tracker if you drive a lot for work. Or it could mean finding an app that automates your expense tracking if your business involves buying a lot of products or equipment. What’s important is that you find a method that works for you – something that’s definitely worth thinking about now as we enter a new financial year. (You can find a full list of important self-employed tax dates here).

Why tracking your income and expenses across the year pays off

Let’s take a look at all the ways efficient income and expense tracking can benefit you, and your business:

1. It makes managing taxes a lot less stressful

Whether you’re a self-employed web designer, tradesperson, beauty therapist or in another industry entirely – managing your own taxes can come with its fair share of headaches.

Things can get especially tricky if you have an ever-shifting client list, with payments coming in from lots of different angles. The same goes if you buy equipment or products regularly for your business.

All of this can lead to a pretty stressful time when it comes to doing your tax return. But it doesn’t have to – so long as you don’t leave sorting your income and expenses to the last minute.

Tracking what you earn and what you spend for your business across the year keeps things infinitely more simple. By spending just ten minutes a week keeping on top of things, you’ll completely eradicate the stress that comes with tackling a year’s worth of accounts at once. Nice.

2. You’ll have a much better understanding of your money

It can be hard to make important financial decisions when you don’t have full visibility of your earnings – or how much tax you’re likely to owe – until the end of the year. Tracking your income and expenses as you go, on the other hand, means you can make more informed choices about everything from holidays to mortgages.

It also equips you to make better decisions about business investments – whether that involves paying to go on a training course, getting tickets to a creative conference, or buying new equipment for your trade.

3. You’ll be able to file your tax return early, giving you better access to money services

If you leave sorting your income and expenses to the January tax deadline, you won’t be able to file your Self Assessment until then either.

This can leave you in a tricky spot if you need proof of earnings earlier in the financial year. For example, you might want to apply for a mortgage or another kind of loan.

Tracking your income and expenses across the year means you’ll have all the information you need to file your Self Assessment as soon as the financial year ends. So you can start applying for that mortgage from, say, the spring, rather than waiting until the following January.

4. You’ll be much less likely to overpay on tax (or make mistakes on your return)

Missing business expenses means paying more tax than you need to. But when you’re trying to sort through a year’s worth of business expenses in one go, making mistakes like this becomes pretty likely.

Sure, a web designer probably won’t forget about that Apple Mac computer they bought for their business. But they might forget about the printer they got on sale, or that set of design inspiration books they bought spontaneously six months ago.

Tracking your income and expenses through the year means you’ll be so much more likely to catch every expense. And you’ll also be less likely to make other mistakes, like missing an invoice when calculating your income (which can lead to an administrative nightmare later down the line).

Whatever industry you’re in, working as a sole trader doesn’t have to mean dealing with stressful tax and financial admin as a matter of course. You just need the right tools to hand. We’d recommend using a tracker app like Finmo, which lets you track all of your earnings and expenses in one place – even if you have multiple sources of income.

By adopting this healthy financial habit, you’ll not only make your tax life easier, you’ll benefit from feeling much more in control of your finances year-round. And there’s a lot to be said for that.

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