Starting your own business comes with so many perks. You get to live out your dreams and watch your hard work and ideas come to life. You will be able to manage your own time as you like, and the flexibility and freedom that comes with this can be so refreshing. However, the most daunting part for most people is the challenge of having to manage your own finances. You may be wondering what you need to consider, how you can save efficiently and how to make sure you don’t run out of money from a bad month or two. If you plan properly, you can make the most out of your money and ensure that you are budgeting and saving efficiently. Come up with a good retirement plan, remember to portion money for taxes and you will be financially stable while self employed in no time.
Figure out a budget
The very first thing you should do as a self employed person is to figure out a budget. A budget will help you to make sure you are always making the best decisions for you and it will provide you with a great frame of reference for every future financial decision. Consider things like your rent or mortgage payments, bills, food allowance, taxes, spending and any other outgoings. Your budget can be whatever will work best for you, but once you’ve decided on it, don’t overspend. In order to have control over your expenses, you can use a startup credit card to avoid possible overspending.
Keep money aside for taxes
One of the most common and the most costly mistakes that people make when running their own business is to not properly set aside enough money for taxes. It is easy to forget, since most employers at regular jobs will deduct your tax money automatically with every paycheck. However, self-employment means not just freedom over your money but also the responsibility of paying your own taxes. It is also important to remember that self-employed people often pay taxes quarterly instead of yearly. If you are unsure how much you need to be paying, be sure to enlist the help of a professional to work out exactly how much to set aside, especially as your business grows. If this step is done wrong, you may be faced with having to pay back thousands in taxes and late fees, which could easily cripple a small business.
Plan for your retirement
It is also really important that you plan for retirement. No matter your age, you should be planning your retirement as early as you can. Although it might seem overwhelming, there are lots of businesses set up specifically to help people plan their retirement funds and choose the right payment plans depending on your finances and personal situations. It can be an extremely simple process if you choose the right companies, and it is an essential step to ensure that you have a relaxed and financially stable retirement. Investing in overseas property is also a great option to consider when it comes to retirement planning. It provides a unique opportunity to diversify your retirement portfolio while giving potential returns such as rental income and capital appreciation.
Give yourself a salary
Although you may go into self-employment thinking that every cent that you are bringing in should be for you to do whatever you like with, but if you want to stay in control of your business’ finances you should put yourself on a salary. For example, if you’ve worked out that you can live happily on a budget of $3000 each month, then pay yourself that much and put any leftovers into your business account. This should stay the same even if you have an incredibly profitable month as it will allow you to increase your business’ savings to cover you for an underperforming month.
Divide in percentages
After you’ve taken your salary, divide up the rest of your money in percentages for each check that comes through. For example, whether you are making $10,000 or $50 on any given month, you might put 30% of it away towards taxes, 10% towards your retirement fund and 5% away for savings. This means that any amount you receive will be divided up in a similar way and means you don’t need to recalculate everything each month.
Create an emergency fund
Whether you’re self-employed or not, it is always a good plan to put together an emergency fund. An emergency fund should be in place to cover all of your basic expenses for at least 3 to 6 months, and should only be touched if absolutely necessary. If you’re self-employed, this is particularly important to protect both yourself and your business. It should serve as a safety net for emergencies such as long periods without sales, the breakdown of your business or even a lawsuit.
If you plan your finances carefully, self-employment can be as financially stable as working for someone else’s company, but with the freedom and flexibility of being your own boss. Careful distribution of finances and savings can ensure that your business will be able to not only thrive on its better-performing months, but also get through the rougher, worse-performing months.