Being self-employed can be a great option for many, but managing your finances can be tricky. Unlike a regular salaried job, you have an income that can fluctuate wildly every month, and that can make budgeting a challenge. Fear not, however, as it is far from impossible. Here, we look at some tips to make organizing your finances simple when you are self-employed.
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Keep your business and personal finances separate
It is critical to keep your freelancing finances separate from your personal finances. You will be able to keep better track of your income and expenses if you have separate accounts. You will also have more organized records, which will make it easier to demonstrate what business expenses you can deduct on your tax return. Not only that, but it makes applying for credit from somewhere such as Change FI even more simple.
Make a budget and stick to it
Inconsistencies in income can make creating and adhering to a budget a challenge, but it is not impossible given the circumstances.
Because no two months are the same for a freelancer, you will have to base your estimate of earnings on an average of the earnings from the previous three months. Keep in mind that one bad month does not define your company, just as one successful month does not define your company.
When you figure out your average income, you will have a better idea of how much money you’ll need to budget. Always remember to keep track of all business receipts and to budget for all business expenses when planning your budget.
Because it is your responsibility as a self-employed individual to estimate your taxes on a quarterly basis, it is critical that you keep meticulous records of your income and expenses throughout the year.
Have an emergency fund to hand
As a freelancer, your income fluctuates on a regular basis depending on your workload. As a result, having an emergency fund becomes even more important.
It is possible to use an emergency fund to cover any sudden and unexpected expenses, such as medical bills or car repairs. In light of the fact that income as a freelancer is not completely predictable, having an emergency fund can help you and your financial situation. Ideally, you should have enough money saved to cover your expenses for six months.
Make sure you keep paying off your debts
Some people are hesitant to use their income to pay down debt because they do not always know what their cash flow income will look like in the following month. Instead, they prefer to keep their money in a place where it can be easily accessed in the event that their company experiences a period of poor financial performance.
If you have personal debt, don’t forget to set realistic debt repayment objectives for yourself. Despite the fact that you may feel you have more important things to do, it is critical that you continue to pay down your debt. Paying off debt will lower your interest payments, assist you in improving your credit score, and allow you to redirect the money you were previously paying to debt toward your business venture.
