Setting out and starting your own business is no easy feat. At some point, you might find yourself struggling to manage your finances. You need to know how to handle your money – both personal and freelance finances – or otherwise, you could end up owing thousands in taxes and loans you can’t afford.
In this article, we’ll give you tips on how to manage your finances as a self-employed person:
Pay Yourself a Regular Salary
This tip might seem a little strange since you’re essentially working for yourself. But setting aside a fixed salary is a good practice, especially if you’re planning to grow your self-employed business.
Like any other business, self-employed businesses will also go through profitable and lean periods. A monthly salary allows you to build the funds in your business account. This cash cushion can help you cover unforeseen expenses that can catch you off-guard.
Keep Your Business and Personal Finances Separate
Several small business owners often neglect this tip. The majority of startup owners think they can get by with just their personal bank account for business and personal financing. After all, it is their business, and it’s under their name, so it makes sense.
However, as your business grows, you will need to become more organized with dealing with your finances. And having a separate business bank account makes it easier for you to stay on top of your finances.
Open a Savings Account
Similar to creating a separate business bank account, another great idea is creating a savings account. Even if you already have a personal savings account, you could dedicate that as your overall savings location.
But the primary purpose of a savings account is only to be used for emergencies. Additionally, you are setting a small portion of your income aside so that over time, it piles up. So not only is this good for safety but also as a long-term investment.
Create a Business Budget Plan
Just like how you set aside some capital at the beginning to start your business, you should also have a continued budget for your business operations. That way, you will always have some cash to work with.
This budget will also help you recognize how much it takes for your business to run and how much more you can spend on its growth. Therefore, set aside a budget plan, preferably a monthly budget, so that you can understand your business’ cash flow.
One of the benefits of working for a company is that you are automatically covered by health insurance. So when you become a self-employed professional, it’s your responsibility to protect yourself through insurance. Without one, you can put you and your family’s life at financial risk.
Consider getting health, life, car, and business insurance. It can be tempting to forgo insurance because of the cost, but keep in mind that it’s one of the best things you can do to protect and plan for the future.
Use Digital Technology
Fortunately, there is a lot of software, tools, and even apps that you can use to help you manage your business finances. It can be challenging to keep track of every expense, payment, etc.
Don’t be afraid to learn about a technology that can help you deal with financial matters. As a self-employed individual, you will need all the assistance you can get while managing all the other aspects of running your own business.
Consult an Accountant
When you’re a business owner, particularly when you’ve just started, you tend to want to do everything yourself. Although this can be a good idea to save on budget, you will reach a stage where you will need professional help.
Hiring an accountant is an assistance that you’ll need to turn to sometime in the future. Even if all you can handle is advice, you should still seek it. Accountants can help manage your tax and let you know what to prioritize when it comes to financing.
Have an Emergency Fund
Self-employed professionals’ income is subject to irregularities. So, it’s imperative to build an emergency fund when you can. You can tap into this fund for any sudden and unforeseen expenses, such as medical bills, funeral costs, and car repairs. Ideally, the amount of your emergency fund should cover at least six months of expenses.
The Bottom Line
As a self-employed professional, your finances won’t be predictable or steady. Despite this, you can still effectively manage your finances by making wise financial decisions, setting your priorities straight, and getting help from accountants and other professionals.