Taking the leap and becoming self-employed can be both exciting and scary. After you’ve prepared financially to become self-employed, you’ll need to maintain control over your finances and possibly tweak your spending plan to ensure you’ll have enough to meet your expenses each month.
Here are 6 simple budget tips that will help contribute to your success.
1. View It as a Spending Plan
The word ‘budget’ can make people feel tense. Budgeting can seem limiting and no fun which is why you don’t have to commit to a strict monthly budget even when you become self-employed and have a fluctuating income.
If it’s easier for you to loosely plan out your spending, you can still stay on track take care of your necessities without running short.
2. Estimate Your Monthly Earnings
Sometimes counting your chickens before they’ve hatched isn’t always a bad thing. Even though your self-employment income may vary, there’s nothing wrong with estimating your monthly earnings as long as you aren’t spending money before you actually receive it.
Determine how much you need to earn each month and how much work you have lined up. If have contracts established for client work, you can easily estimate how much you will earn each month. That way, you’ll have an idea of how much you can spend and what you may need to do in order to hit your monthly projections.
3. Separate Business and Personal Expenses
It’s imperative that you keep business and personal expenses separate once you start working for yourself. One of the best budget tips is to determine how much you need to spend on your business each month and deposit the money into a business checking account. Then, keep the rest of your income in your personal bank account.
This will help things run smoother during tax time, and allow you to get a clearer view of how much money you have to use each month.
4. Set Aside Enough Money for Taxes
Paying taxes will be your sole responsibility when you become self-employed. With that being said, be sure to talk to your accountant or a CPA to determine what your tax rate is and how much you should set aside each month for taxes.
You should also keep a record of what you pay in quarterly taxes and keep track of all your expenses as well.
5. Make Savings Contributions a Fixed Expense
It’s important to get into the habit of saving a portion of your earnings if you haven’t already. While self-employment provides lots of freedom and opportunity, it also can create many income risks.
If you lose a client or source of income, you want to have enough emergency savings lined up to fall back on. This is why you should choose a fixed amount of money to transfer to your savings account each month. This has been one of my top budget tips for the past 3 years that’s saved me.
Include the savings contribution in your monthly spending plan just like you would for your rent or mortgage.
6. Create a Bare Bones Budget as a Backup
The first few months of self-employment may seem like the scariest as you start to notice that your money is being dragged in all these different places whether it’s business expenses, savings, taxes, etc.
This is why you should develop a bare bones budget early on which lists out just the basic expenses you need to meet to survive. During slower months, you may need to start using your bare bones budget in order to make ends meet.
During profitable months, you should be saving extra if you can but your bare bones budget should always be there to use as a last resort. The basic budget you create will help eliminate financial stress as you work through the feast or famine seasons of self-employment.
Summary: Secure Your Financial Situation Step-By-Step
All of these money management tips are very important to consider when you become self-employed and they are simple to implement. Don’t let income and budgeting hold you back from launching a more profitable career and running your dream business.
Realize that you can develop better money management habits to eliminate financial stress by implementing each of these tips step-by-step.