3 KEYS TO MANAGING YOUR MONEY WHEN YOU’RE SELF-EMPLOYED
If you’re like 10 percent of the active American workforce, you are self-employed. Those who enjoy going into business for themselves find a great degree of freedom and empowerment. These benefits can be quickly overshadowed by the effects of poor money management. In order to realize your dream and help your business thrive, certain key habits and skills are critical.
1. Organize, Organize, Organize!
You may have already thought about the most exciting aspects of your business, such as target market products and services. However, in order to build on your core offering and passion, you need to keep your finances highly organized.
- Taxes – Many self-employed people forget about Uncle Sam until they are hit with a shocking letter. Unlike the days when your employer would automatically deduct taxes from your paycheck, you will need to do all of this yourself. This should take priority over everything else because the costs of not doing so can shut you down. Keep in mind that you may need to pay an extra 15 percent self-employment tax in addition to your regular income taxes.
- Budget – In addition to a personal budget, you need to create a business budget to allocate expenses like postage, childcare or insurance. Calculate the basics you will need to make ends meet and determine an acceptable monthly salary for yourself. If forgotten, these items could cause your business to fail. Identify your expense categories and decide the percentage of income that will be allocated to each category monthly and stick to them.
- Tracking Expenses – It may be easy to dismiss a small business lunch here and there, but not having a system of tracking can severely disrupt your budget.
- Open Separate Accounts – We can’t stress the importance of this enough, but the secret to staying organized and on track is having your business accounts separate from your personal accounts. You can create an account to save a percentage of your income for taxes so you never have to worry when the quarterly taxes become due. Check out Axiom Bank’s Business Account options or call 321-249-7847 to speak with one of our experienced Commercial Relationship Managers.
2. Plan Ahead
You shouldn’t neglect your own goals for the future such as retirement or emergency savings. While it is great to be your own boss, you no longer have the matching 401k contributions that many employees receive as benefits. This means you will have to make it a higher priority to save for your post-work life.
There may be some months where you make double or even triple the amount of profit you had estimated. In these cases, you should take out and apply the regular amounts towards the items in your budget. Then add anything extra to an emergency fund. We recommend doing this in percentages, so regardless of the relative size of the pot, you are still funneling money into every priority you have.
On months when you don’t make as much, you’ll be thankful that you saved your profits from the high-income months. Eventually, you should aim to be able to go 3-6 months without a salary because you have built up significant savings. This takes diligence and self-control. It takes doing the little things right, every month.
Adopting these key habits into your business plan is going to set you up for success, so you can focus and enjoy the fruits of your labor!