We know. We know. A ton of questions are running through your head right now. And you’re probably worried that you’re going down the wrong path like running out of money or owing thousands in taxes that you can’t afford. But just like always, we’ve got your back. If you’re self-employed and you want to fix your financial situation not knowing where to start, check out these tips on how to manage your money better in your own business.
Never underestimate your expenses
Fortunately, most home-based businesses require less than $5,000 in capital to startup. However, running a business will cost you. So, how do we deal with these expenses? If you want to make sure that you’re making the best decisions with your money, figure out a budget. It’s very similar to packing a map on a holiday (or a GPS of some kind), this will give you a solid frame of reference for all of your subsequent decisions.
Give yourself a salary
It can be hard to get past the idea that every dollar that comes in is for you to do as you please. To avoid that put yourself on a salary, it will help you control your business’ finances better. Honestly, it’s all in your head, if you know that you can live comfortably on, say, $4,000 a month, pay yourself that amount every month. In case you have a better-than-normal month, fight the urge to take more and instead leave the surplus in your business account, because you never know, you might just need it to compensate for the months that might not be so good.
No borrow, no loss
When you borrow a credit card, it can quickly lead to costly trouble. But what about business expenses, you ask? Then open an account specifically only for business purposes. But honestly, it’s best to stay away from credit card loans. If you desperately need money to launch your business, consider a business loan instead.
Do your tax check regularly
All self-employed individuals may have to pay up to a 15 percent self-employment tax outside of their regular income taxes. In that case, if you want to avoid tax surprises, ensure to review your taxes throughout the year and make all your payments on time. Because one of the biggest mistakes is to fail to set money aside for taxes. Most people don’t even think about it, especially because employees at regular jobs have their taxes automatically withheld.
Fortunately, or unfortunately, the freedom of self-employment comes with the burden of handling your own taxes. That also means you might have to pay on a quarterly basis.
Get your paperwork in order
Keep all your paperwork in order. Are you billing clients or customers regularly? Then get your paperwork sorted. Keep multiple copies of all receipts for tax time. Because networking is so important, keep business cards and contact information in an organized manner.
If it’s harder to manage money than it looks, get help for your business! Consider working with a lawyer who can help you with the necessary documentation and other complex legal matters. You should also contact your insurance agent to make sure you have appropriate coverage.
Percentages all the way
Divide up your money by percentages and apply it to every check that comes in. If you’re putting 30% away for taxes and 10% away for retirement, then ensure to stick to those numbers whether you get a $20,000 check or just a $50 one. A uniform plan will be an effective plan when applied regardless of the amount you receive.
Set up your emergency fund
An emergency fund is a good idea for everyone, but for someone who is self-employed, it’s a necessity. Ensure that this fund has enough money in it to cover your basic expenses for 3-6 months. And don’t touch it, use it as your last resort. Think of this as your safety net for your worst-case scenario.
Thinking about the future is not only for teenagers but for adults as well. If you’re not planning for your retirement, you need to start now (now is never too late). It may seem like a daunting task at first but is very rewarding in the future. If you don’t know how to start, there are professionals out there who can help you. If you start now, you’ll be thanking yourself later as you approach retirement age. A little planning combined with spending discipline will make sure that your business can weather the rough months and make the most of the good months. A stable income may be something that you miss, but if you’re smart, you can have the same amount of stability all by yourself.