Was reading some irrelevance about Tax Freedom Day, and it got me to thinking: how many days do I have to bill in a tax year in order to give me the freedom to do whatever I like for the rest of the year?
When is your Work Freedom Day?
To work it out...
Calculate the amount of income that you require in order to cover all of your living costs, including a sensible amount for recreation, holidays etc. and tax for one year
Subtract from this the income that you will earn from
- buy-to-let properties
- other personal investments
- interest on the capital you have in the company bank account
Then, calculate your effective daily rate (either use one of the Contractor Calculators, or work it out for yourself if you feel like spreadsheet jockeying)
Then, calculate how many days of revenue you need to earn in order to ensure that you have
- your income required for one year (don’t forget to allow for higher rate tax, if you fall into that bracket)
- New Investment Capital. I try for a 10% contingency on top of my income requirement each year to put into savings/investments.
Then, working from 6 April (the start of each tax year), find the date on which you have achieved your revenue target. This, for you, is Work Freedom Day. From that day on to the end of the tax year, all work that you do is optional and should be undertaken only if
- it’s interesting
- it’s increases your earning potential in future years
- you really want to
Or, for the mathematically minded among you
WFD = 6th April 06 + ((Sum (Costs inc. tax) + Sum (New Investment Capital) – Sum (Investment Income))/Effective Daily Rate)
When is your Work Freedom Day?
To work it out...
Calculate the amount of income that you require in order to cover all of your living costs, including a sensible amount for recreation, holidays etc. and tax for one year
Subtract from this the income that you will earn from
- buy-to-let properties
- other personal investments
- interest on the capital you have in the company bank account
Then, calculate your effective daily rate (either use one of the Contractor Calculators, or work it out for yourself if you feel like spreadsheet jockeying)
Then, calculate how many days of revenue you need to earn in order to ensure that you have
- your income required for one year (don’t forget to allow for higher rate tax, if you fall into that bracket)
- New Investment Capital. I try for a 10% contingency on top of my income requirement each year to put into savings/investments.
Then, working from 6 April (the start of each tax year), find the date on which you have achieved your revenue target. This, for you, is Work Freedom Day. From that day on to the end of the tax year, all work that you do is optional and should be undertaken only if
- it’s interesting
- it’s increases your earning potential in future years
- you really want to
Or, for the mathematically minded among you
WFD = 6th April 06 + ((Sum (Costs inc. tax) + Sum (New Investment Capital) – Sum (Investment Income))/Effective Daily Rate)
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