The dream of many people is to be their own boss and to work in a role that they enjoy. Being self-employed can be a great way to live, but you should be aware of the potential problems you may face. Below we have provided a little advice on a few of the main topics to help you with your finances should you decide to go it alone and work for yourself. Take a look.
Plan a Budget
When you become self-employed, consider all aspects of the budget to get a clear understanding of your financial picture. Write down all your expected outlays necessary to keep your job running smoothly. Marketing costs, often overlooked, can be substantial. Further, you are likely to have a few unexpected expenses that crop up from time to time. Be as detailed as you can when preparing your yearly budget as this is the road map to having a successful career as a self-employed entrepreneur. If your position requires you to use external companies such as IT support, accountants, or short-term contractors, you will need to allow for those, as well, when putting your budget on paper.
Take a Salary
In getting started, many self-employed people forget that they should plan to take a fixed salary from the operation. Understand how much you need to live on and to pay your bills and plan to take a set amount each month. You’ll be in a position to start to receive more from the business as it establishes itself, but by being strict and determining a set amount on a regular basis, you will be allowing for major hardships, when, for example, work is slow, or if you are slowed by illness. The money will still be there if you decide to stop your private venture, and by designating a reasonable salary, you can use the rest of the money as a savings plan should you want or need it.
Be Prepared for Hard Times
Being self-employed can be one of the greatest jobs available, but you need to ensure you and your family can cope should things go wrong. Always be prepared, as being unable to work for any period of time can seriously affect your income. Specifically, if you have a mortgage, consider mortgage insurance to protect your loan investment and livelihood, and to help cover any repayments you can’t make due to illness, injury, or lack of available work. This way, you and your family are safeguarded even in most worst-case scenarios. You could also explore additional insurance coverages in the event you are seriously injured and are unable to work. Try to keep enough funds immediately available should you suffer an unfortunate event.
Prepare for Taxes
Many employees have their tax payments automatically deducted. When you are self-employed, it’s on you to be aware of your tax responsibilities and to set aside enough money to cover these bills as they become due. Perhaps, set aside a percentage each month to cover the taxes you may need to pay. As a self-employed individual, you can qualify for deductions for things such as equipment you buy to carry out your job, as well as other work-related costs. Get a thorough understanding of the local state and national tax laws, so you don’t get left out of pocket as taxes become payable.
Give Yourself Benefits
Most employees get paid vacation time, health coverage, and contributions for extra training. Although you are self-employed, you need, if possible, to factor these into your monthly budget. Allow enough money so that you can add additional skills when needed or refresher courses to keep you up to date with the latest trends and best practices. These are not massive expenses, but they too can be overlooked by the inexperienced self-employed person. Remember that everyone needs a break, whether that means closing during the holiday season or taking the family away for a two-week summer vacation. Your working year should never consist of fifty-two weeks, so this needs to be factored into your budgeting plans to allow you the chance to spend time with family or friends.
Ask for Help
This is perhaps the most crucial advice we can give, regardless of how clever or motivated you are, you will need help at some point to keep your job running smoothly. If you are not very good with numbers, you will want to hire a reputable accountant or perhaps take a bookkeeping course. Use the tools available that will save you time and money such as accounting software, self-employed advice, and speak to experienced entrepreneurs who have worked for themselves before. Never be afraid to ask someone with more experience how they handled certain aspects of their job as this will save you from spending needless time and money on areas that have little benefit.
As mentioned above, there are many factors you will need to consider before going it alone and working for yourself. By acknowledging these before you start and understanding how to manage your finances, you will be in a great place to become your own boss. Being self-employed is a liberating and fun experience, so start your new role today.