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I have a great contributed post for today on personal finance tips for the self-employed among you. It's for informational purposes only, so please consult a financial professional before making any money decisions. Got it?
For many people, the idea that they could work from home, be their own boss, and make all their decisions is a dream they would love to come true. However, while there are many perks from being self-employed, there are some other issues that people who don’t work this way fail to see.
Take money, and all the associated issues, for instance. A self-employed person’s financial layout is much different from a person who works for a company. Below, we take a look at some useful tips to ensure you’re not left behind.
If you work in an office, you are likely to know exactly how much money will be going into your bank account at the end of the month. If you’re self-employed, you don’t have this luxury. Work might be busier or slower than usual; you might be waiting for people to pay their bills, and so on. Not so useful if you’re trying to make a plan for your money, right? Instead of just going with the flow, work out the average amount of money you make each month. It’ll give you a much better understanding of where you are on your financial journey.
In the world of doing what you want, you probably don’t want to be spending too much time sitting at your desk, filing away all your financial details. But trust us: you’ll be much better served if you take some time each way to do a spot of accounting. When it comes to getting business loans, and so on, you’ll be in a much stronger position if you have several years’ worth of documents showing how much money you’ve been bringing in each month. Plus, it’ll help you keep an eye on the stability of your business; if you have records that prove you’re increasing business by 15% each year, you’ll have all the encouragement you need to carry on working hard!
Yes, if you’re the only person in your company then it might all, more or less, be “your money”. But in reality, this is not the right attitude to have. Instead, you should be paying yourself a wage each month, and doing things like issuing a check and payslip, too. This will help you to calculate the tax and other fees you have to pay, and also leave some money in the pot, which you can use for business expenses and the like. The salary is your money: enjoy it!
One issue that most people overlook when they become self-employed is that you might struggle to get funding for the big expenses in life, such as a loan for a car or a mortgage to buy your first house. However, while you won’t have all the same options as a general worker, they are options for you. If you’re looking for a mortgage, then a company like Altrua Financial can help you. Your finances are likely to be more complicated than those of most other people, but that doesn’t mean that you have to be left behind when it comes to the big things in life.
It’s important for all people to have emergency funding, but it’s extra essential for self-employed workers. This is because you can never be entirely sure that your business will be as good tomorrow as it is today. It could take one technological advancement to come along, and then your business is finished. In a company, this generally tends not to happen, because there are people at the top who are keeping an eye on the industry and can take steps to ensure the company continues to make a profit. You have no such guardian angel. As a general rule, it’s a good idea to have at least six months worth of income in your emergency fund. If things slow down, you’ll have some breathing space with which you can form a new plan.
Like the emergency funding, it’s important for all - but particularly the self-employed - to have a plan for retirement. It costs a lot more than most people think to retire, and if you’re not already paying into a savings account now, then you might be in for a nasty surprise when you decide to call it a day with work. Each month, make sure a sizeable percentage of your income is going into a savings account.
Financial matters can be a little bit more challenging when you’re self-employed, but they're not impossible!