Self-employment is a dream job for many. You get to choose your working hours and pick the projects you like working on.
You may also take multiple projects to afford a good lifestyle, buy a nice car and even get Spectrum offers to enjoy HD cable at home. But self-employment comes with a cost. One has to wear multiple hats which include managing administrative tasks and bookkeeping.
The biggest challenge of all is taking control of your financial affairs, paying your taxes on time, and staying out of debt. For anyone who runs a business, these tips will serve as a guide to navigate your books:
Keep Personal and Business Finances Separate
Separating your personal and business finances makes it easier to track the income and expenses. Another benefit of this bifurcation is that you will have cleaner records to show business expenses at the time of filing a tax return.
Create a Budget
It can be challenging to create and follow a budget because of income inconsistencies, but it’s not impossible.
For the self-employed, the income of two months is never the same. One bad or successful month shouldn’t define your business. You will have to base things on average earnings to plan out a budget. Keep the record of all business receipts for tracking expenses since you will also have to estimate your taxes each quarter.
Pay Yourself a Salary
Being self-employed doesn’t mean every dollar you bring is yours and you can do with it as you please. You have to use the income to pay business expenses as well. It is hence a good idea to pay yourself a fixed salary such as $4000 a month and keep the rest of the income for managing other business expenses including maintaining savings.
Maintain an Emergency Fund
Continue maintaining emergency funds like you did when you were doing a 9 am to 5 pm job. Don’t forget that your earnings are likely to fluctuate and having an emergency fund must be a priority. This fund is meant to meet unexpected expenses like car repairs or medical emergencies. Ideally, have enough saved to cover 6 months of expenses.
Save for Retirement
Never forgo a retirement plan. Fortunately, you can still contribute to a solo 401K and plan a secure future.
Don’t Rely on Credit Cards
It is tempting to use a credit card, but it can soon become a habit that can cost you a great deal of money. Avoid credit as much as possible. In case you need a credit card for business expenses, open an account for that separately.
Plan for the Rainy Days
A freelancer earns different amounts from month to month. Even those who make lots of money freelancing have slower months in business. Plan for those not-so-good months in advance so you don’t have to face the music.
Be a Problem Solver
Between managing projects and creating budgets, an entrepreneur must troubleshoot and come up with solutions. Think outside of the box and become a problem solver. For instance, if you can’t afford to hire a designer right away, then look for barter services.
Don’t stress yourself out by focusing on the problem. Instead, focus on the solution.
Get an Insurance Plan
Self-employed don’t have access to an employer-sponsored insurance plan. This means you are responsible for medical insurance yourself. It’s extremely important to have coverage for yourself and your family.
It can be tempting to forgo the cost of the insurance but when the time comes and you have to bear the cost out of pocket, this could drain you financially. The best approach is to get insured.
Ask For Help
Don’t be afraid to ask for help from other business owners. They might be happy to answer any questions you have.
Go to online forums to find answers to questions. You may also take free courses at local universities or attend online webinars related to bookkeeping and managing finances.
With a little planning and self-discipline, you can make it through the rough months and stay out of debt. Be aware of where the money is going to make smarter choices in the future.
Make the best out of being your own boss!