Frankie Smith is the founder of Frankie’s, an exclusive membership community for women to connect, collaborate and engage with finance. She has been running the AllBright Investment Club for almost three years and writes a monthly column for AllBright Post answering all your financial questions.
This month, your questions have focused on how to ensure you are keeping on top of your finances while juggling motherhood and work.
What's the best way to navigate a relationship where I earn well, but my partner earns 3x's more than me?
Firstly, it's great that you're thinking proactively about this. Discussing values and attitudes when it comes to money can be challenging initially, but I’m a firm believer in the importance of it for long-term financial success. My advice would be to start by discussing your financial goals, and what matters to each of you. Consider talking about your individual and short-, mid-, and long-term goals. From here you can start to look at budgeting, and what works for you in terms of splitting out contributions. Remember, it’s not always how much each person contributes but more about creating a plan you both feel respected and comfortable with.
Creating a budget will enable you to see where you can align your finances and give you some scope to consider personal savings. Many couples find it helpful to have a joint account for shared expenses, while also maintaining individual accounts for personal spending and savings. It's important to consider building your own investments and savings separate from your partner, to ensure a feeling of financial independence while working towards shared goals.
Since your partner earns more, you may also want to consider tax efficiency and how to best utilise tax allowances and savings opportunities for both of you. In terms of longer-term planning, ensuring you have protection in place (such as life insurance, income protection) is key, and you could consider sitting down together with a financial advisor to build a joint financial plan that respects your individual needs and aligns your goals.
What are the 3 most important finance aspects of an SME?
A great question and one I often get as an advisor to businesses. In my opinion, the three most important financial aspects every SME should keep a close eye on are:
1. Cash Flow Management
Cash flow is what keeps you operating, so managing this carefully is key to maintaining stability. Forecasting is a key focus area when it comes to cash flow. Align your forecasting to specific business objectives and decide on a timeframe that works for you, be it quarterly, annually or something else, based on your business. Building a buffer of 3-6 months of operating costs will also help you to absorb any shocks or make last-minute strategic changes. Consider using cloud accounting tools (such as Xero) to track cash in real-time and integrate forecasting tools.
2. Invoicing
Especially in the early days, one of the best ways to stay financially grounded is to pay your own invoices. It also means you have to log in to your bank account, no matter how daunting that might feel on a day-to-day basis! Seeing what’s going out and understanding exactly what you’re spending money on is a great way to stay connected to the financial stability of your business. It also helps build discipline and awareness of your overheads, and helps you spot unnecessary expenses. Of course, as you scale, continuing this would be too laborious, but even then, I’d recommend regularly reviewing your outgoings.
3. Tax efficiency
Tax planning is a crucial part of any SME. The first step is to make sure your business is structured accordingly and from there understand what taxes your business is liable for. Familiarise yourself with your allowable expenses and take advantage of these to reduce your tax liabilities. Depending on your company set-up, you need to also understand the best way to pay yourself an income, for example for company directors a combination of drawing a small salary and dividends can be one of the most tax-efficient options. Remember dividends can only be paid if your company is profitable. If you’re self-employed, you’ll want to regularly review your income and ensure you’re putting enough aside to pay your personal tax bill. An effective strategy for this is automatically deducting your estimated tax each month into a separate savings account, so you don’t get caught out. Working with a qualified accountant who knows your industry can be the key to success when it comes to staying compliant and efficient with your tax planning.
How do I invest as a US citizen living in the UK and not getting a double hit on taxes by UK/US?
A great question, as for a US citizen living abroad, when it comes to investing, ‘straightforward’ rarely applies. There is an income tax treaty between the US and UK which intends to avoid situations leading to double taxation, however planning is still required to ensure it’s utilised correctly. The Foreign Earned Income Exclusion (FEIE) is one of the most valuable tax benefits available to US citizens who live and work abroad. If you’re a US citizen living in the UK, be mindful you’ll need to file a US tax return. It’s worth speaking with a dual-qualified accountant or tax advisor who understands both sides of the US-UK income tax treaty, to help you take advantage of its application.
When it comes to investing some of the UK tax-friendly investments aren’t viewed in the same way by the Internal Revenue Service (IRS). For example, while tax-free in the UK, ISAs do not offer protection from US tax. You can still benefit from contributing to a UK pension but again check how contributions and growth are treated by the IRS, based on the pension type. Be mindful of how long you want to reside in the UK, and where you’re investing your money based on that, as remember money that you are investing in a pension scheme in the UK you cannot be accessed until you are age 57.
One consideration for how you might want to start to put money to work is by using a normal trading account or general investment account, but it is important that you do your research to ensure that you are investing in a way that is compliant from a tax perspective in the US.
Disclaimer
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