Friend is financially clueless

[FlabbyMidgets]

A close friend of mine is seeking some advice, any comments or suggestions would be appreciated, I'll send him a link and post replies on his behalf. If this is the wrong place, apologies.

Hi everyone, one of the few advantages of lockdowns is that for once I reflected on my finances. I feel like i am chasing my own tail constantly. I'm not the best with numbers and i still dont understand how my tax is calculated.
Earning anywhere between 3 and 13k a month. I don't really understand how to manage my income and how to best plan for the future. I pay around 1k a month to CPD/postgrad. I am a homeowner but practically no savings. I joined the NHS pension but stopped doing NHS work years ago..
where does one start? I looked into setting a limited company to reduce my tax outgoings but doesn't seem worth the hassle (accountants advice) Yes I could always lower my outgoings and start looking at alternative income eg. stock exchange and all but I just feel lost and overwhelmed as if I've missed the train already anyone felt in a similar situation, I know my query is vague but any tips would be useful. Anyone I could speak to for advice would be handy as well.

[randlemarcus]

Set outgoings to 3k a month, and then start thinking about how to manage the odd 10K surplus

Christ, there's a few issues in the OP

[Lim]

I would start with the expenses side of the equation. Categorise expenditure for a period, say 3 months, to see where the money is going. Once you have a handle on what your real monthly outgoings are, both essential and discretionary, you can start looking at how best to manage the surplus, when you know what it is.

[Greshamst]

What do they do, and how is that paid?

At those suggested amounts I’d work through a LTD company if not caught out by the IR35 tax rule.

[FlabbyMidgets]

Greshamst said:

What do they do, and how is that paid?

At those suggested amounts I’d work through a LTD company if not caught out by the IR35 tax rule.

He's a dentist, he does private work self employed. It's paid by bank transfer from the clinic after they take their fees.

Judging from the current conversation the high income months are very few and far between, he says it mostly varies between 3-5k.

[Bam89]

Their age is also quite relevant for planning

[WonkeyDonkey]

Honestly with that kind of income I'd speak to a professional financial advisor as they can go through the details without the vagueness of a forum.

[FlabbyMidgets]

Lim said:

I would start with the expenses side of the equation. Categorise expenditure for a period, say 3 months, to see where the money is going. Once you have a handle on what your real monthly outgoings are, both essential and discretionary, you can start looking at how best to manage the surplus, when you know what it is.

Thanks, I've passed this on. He has an excel sheet he uses but it doesn't make sense to him, he finds it quite confusing due to tax rates etc. Are there any excel workbooks anyone knows for self employed people?

[FlabbyMidgets]

Bam89 said:

Their age is also quite relevant for planning

He's 29.

Regarding financial advisor I'll pass this on. He's got a specialist dental accountant but that's it

[Lim]

FlabbyMidgets said:

Lim said:

I would start with the expenses side of the equation. Categorise expenditure for a period, say 3 months, to see where the money is going. Once you have a handle on what your real monthly outgoings are, both essential and discretionary, you can start looking at how best to manage the surplus, when you know what it is.

Thanks, I've passed this on. He has an excel sheet he uses but it doesn't make sense to him, he finds it quite confusing due to tax rates etc. Are there any excel workbooks anyone knows for self employed people?

You don't need any info about income tax rates in order to categorise his expenses from post tax income.

The key bit is to figure out what his essential expenses are, which can then be put in rough context with income.

Gov are increasingly squeezing tax advantages of ltds etc, so personally (and I'm no expert, but just done this myself recently) I would see tax planning as a last step polish rather than a first step. For eg, it might be the case than any surplus can be fruitfully dealt with by pensions etc so fancier solutions might be moot by that point.

Again, I have no expertise, so will pass over to the experts now in case i start misleading... but that's my rapidly depreciating 2c.

Edited by Lim on Thursday 14th January 12:21

[FlabbyMidgets]

Thanks for the reply re Ltd company and tax planning as a final step.

I've just been through his excel sheet. His sheet is setup for a 5k income (before tax), plus 600 from lodger.
Masters is around 1k, tax he's put as 1.6k. Mortgage 800, car finance near 400, car insurance 200. Along with other (arguably unnecessary) expenditures, and fees for dental stuff (memberships, indemnity etc), income at the end of the month is -£60. To me it seems like a case of too many expenses when factoring in the masters.

[bristoltype603]

Has friend thought about starting/buying own practice? One of my friends retired very comfortably as after a career as a dentist. The key was owning their own practice. They're a long way from that if they have no savings. So maybe that should be the focus. Either way they need specialist advice. Is there no senior dentist who can act as a mentor?

[BoRED S2upid]

£7200 a year on a car plus running costs I hope it’s something nice.

[anonymous-user]

FlabbyMidgets said:

Thanks for the reply re Ltd company and tax planning as a final step.

I've just been through his excel sheet. His sheet is setup for a 5k income (before tax), plus 600 from lodger.
Masters is around 1k, tax he's put as 1.6k. Mortgage 800, car finance near 400, car insurance 200. Along with other (arguably unnecessary) expenditures, and fees for dental stuff (memberships, indemnity etc), income at the end of the month is -£60. To me it seems like a case of too many expenses when factoring in the masters.

I'm sure an intelligent person like him realises that he is overspending on the 'normal' months. Is this the actual advice he wants from you/us? Or is he more concerned about where the excess should go on the better months?

Your spreadsheet snapshot is for a man on ~£65kpa. Is this really representative of his earnings? I very much doubt it if he does only private work.

[FlabbyMidgets]

bristoltype603 said:

Has friend thought about starting/buying own practice? One of my friends retired very comfortably as after a career as a dentist. The key was owning their own practice. They're a long way from that if they have no savings. So maybe that should be the focus. Either way they need specialist advice. Is there no senior dentist who can act as a mentor?

This is his long term plan I believe, with a loan off family. AFAIK the issue is finding a good location. He was looking at one before Christmas but it fell through. I shall mention this though thanks

[FlabbyMidgets]

BoRED S2upid said:

£7200 a year on a car plus running costs I hope it’s something nice.

Few years old cls 220d. Not really a PH choice. I've suggested looking at reducing this outgoing but it seems like a fair chunk of negative equity

[FlabbyMidgets]

Badda said:

I'm sure an intelligent person like him realises that he is overspending on the 'normal' months. Is this the actual advice he wants from you/us? Or is he more concerned about where the excess should go on the better months?

Your spreadsheet snapshot is for a man on ~£65kpa. Is this really representative of his earnings? I very much doubt it if he does only private work.

I think it's the latter. At first I thought it was a problem re savings and where to invest, which is why I thought here was the best place, but since looking at outgoings I think you're right.

[mcflurry]

Maybe he could do a monthly statement, to see all his outgoings (and any that can be cut) ?
Once he knows the outgoings, it's easier to budget and plan his Dental Practice acquisitions

I have the below for example:

Food
Professional subs
Mortgage
Road Tax
Tv Licence
Sky TV
Energy
House insurance
Golf/Gym membership
Car payment
Car Insurance
Netflix
Phone sim
Water
Boiler cover
Phone and internet
Council tax
Window cleaner
Fuel

[anonymous-user]

Tell him to concentrate on having more £13k months and fewer £3k months

Then the rest will look after itself

[NickCQ]

JPJPJP said:

Tell him to concentrate on having more £13k months and fewer £3k months
Then the rest will look after itself

I think this is almost exactly the wrong advice (sorry).
If you don't have a grip on your spending you will consume almost any amount of disposable income. There are lots of people in their late 30s who have been on very healthy salaries for years with little to show for it in terms of savings.