In the world of business, some people prefer self-employment, since they don’t have to deal with the restrictions of being in a traditional office environment. While self-employment can be exciting, one area that can be a challenge is finances. No one is sending you a paycheck every few weeks, and most of the traditional finance tips don’t apply here. If you plan on being self-employed in the future, these tips can be useful.
Creating an Effective Budget
Since you are your own boss, you will have to create your own budget to stay financially stable. As a self-employed worker, you need to save for a lot of different things, including taxes, business expenses, retirement, emergency funds, and more. As a result, you should examine your monthly earnings to get an idea of how much money should be put towards each item.
Your income will fluctuate as a self-employed worker, so once you have a spending plan in place you need to be disciplined and stick to your plan.
Set Aside Emergency Funds
Since you may not have a steady stream of cash coming in through a paycheck, money management is extremely important for a self-employed worker. Sometimes business will be slow, and you might find yourself with less money than you need. This is why it’s important to save money for an emergency so you can fall back on it during rougher periods.
Try to put aside a set percentage of your income each month to build up your emergency fund. This can be more beneficial than setting a specific dollar amount, because if you make more money during one month you will save more. These funds will be extremely important if you suddenly have a medical emergency or some other problem that requires a lot of money.
One of the biggest challenges of being self-employed is that you have to manage your own taxes. Most regular workers have their taxes taken out automatically before they get paid, but self-employed workers do not have that luxury. Naturally, this is one of the biggest changes that will occur when going from regular employment to self-employment.
Use a service like QuickBooks to keep track of your financial status so you always know how much you owe when tax season comes around. Keep in mind that when tax deadlines come due you need to pay your quarterly estimated taxes, which are advance tax payments based on your income. It would be a smart idea to speak with a professional to determine how much money you should set aside each month for taxes.
To alleviate some stress, self-employed workers can take out tax deductions to lower the amount that has to be paid. You can make deductions on automobile expenses, travel payments, and even payments for a babysitter if you have young children.
Planning for Retirement
In addition to emergency funds and taxes, you should also be thinking about your retirement plan. Some workers focus less on retirement when they are just starting their self-employed ventures, since there are obviously other priorities to handle. Despite this, you should try to plan for retirement as early as possible, because the sooner you start, the more money you can save for your later years.
While you are self-employed, you still have many of the same retirement options regular workers have, including an IRA and a 401k plan. Another option is a Simplified Employee Pension, which allows you to save up to 25% of your net earnings for retirement. Preparing for retirement takes a lot of work, so don’t hesitate to seek outside help from a professional accountant.
Look into Outside Help
As mentioned above, there is no shame in hiring someone who can help you manage your finances. As a self-employed worker, chances are you might not have the time to keep track of your financial portfolio. You have lots of things to do and not enough time to do everything, so having a professional accountant to help can cut your workload down.
Different financial experts specialize in different areas, so research them online to find one that can help you in your line of work. Make it a habit to speak with your partner often so you can get the best advice on how to handle your finances.