One the biggest struggles in running your own freelancing business is that of managing the money. There seems to be a lot of confusion over how to simultaneously manage a personal and a business budget.
Some freelancers don’t even realize that they do indeed have two budgets instead of just one – which can lead to a major headache come tax time. Fortunately, if you know how to create a personal budget it can help you create a business budget. The reverse is also true. Here are the three steps to managing a personal and business budget simultaneously.
Figure Out Your Business Expenses
The part people find complicated about managing a personal and business budgets is the fact that they have to account for operating expenses. This is the part regularly employed people don’t have to deal with – so their budget is a little more straight forward.
The good news is you decide how much money to spend on your business each month. With time, it may increase or you may find places to cut, but unlike what many believe, business expenses aren’t completely out of your control. While you may need to spend money to make money, you’re still in charge of making decisions.
For example, I have a set amount of money I’m currently willing to spend on my business each month. On some months, I may have a non-monthly expense pop up like buying books or web hosting, but overall I know what it takes to run my business on a regular basis.
This is also something an accountant can help you determine. Accounting software can also go a long way in helping you untangle your business budget.
Figure Out Your Taxes
The next part people find complicated about managing a personal and business budgets simultaneously is taxes. Honestly, your best bet here is to hire an accountant to help you out. They’ll be able to to help you determine your tax rate, how much you’ll be paying in estimated taxes and when they are due.
Businesses have a far more complicated tax situation than an individual, and that’s why I’m all about hiring the pros here. The IRS is not something you want to mess with and you don’t want to simply “guess” your taxes. Additionally, there are so many factors that can determine your tax rate and you certainly don’t have the time to learn ever-changing tax law.
Budget Your Net Income
Once you’ve determined your operating expenses and taxes, the rest is your net profit. From here you can decide to give yourself a set salary you can easily budget with or just play it by ear.
I personally play it by ear so that I ensure I’m putting as much money away into savings as possible. I know what my regular expenses and savings goals are each month, so that money will always come over to the personal side. But on months where my income increased significantly, I like to make sure I’m saving as much money as possible.
Final Thoughts
Managing personal and business budgets isn’t that hard once you know the numbers. You just need to remain conscious of what is going on and hire the pros when necessary. The main thing to remember is that you have more control over your expenses than you think and that you can always hire help. With time, you’ll learn what kind of a system works best for you.
