The self-employed have it harder than the average person because they don’t have a stable income, they don’t have a company-sponsored health plan, and you can forget about that 401(k) being provided by their employers. Managing finances when you’re self-employed is crucial to your survival.
We’re going to give you some useful advice for managing your personal finances.
- Create a Survival Fund
This is something anyone should do, but for the self-employed it’s doubly important. You don’t have a stable income, so living from month to month isn’t an option. One bad month could push you into debt and create a downward spiral you can never escape from.
Aim to put aside as much of your income as you can until you have at least six months in expenses. You should always look to increase this amount, but six months should be the minimum. Remember that 66 million Americans have no emergency savings and you don’t want to be one of them.
- Track EVERYTHING
You should have spreadsheets detailing all your earnings and expenses. This will make your taxes easier to fill out for the rest of the year, but you’ll also find that making financial decisions becomes easier. Even just missing that Starbucks coffee for $5 every day can really add up.
Just remember to keep the receipts, if you intend on making any tax deductions when the time comes.
- Keep Business from Personal
If you’re combining your business with your personal life, you’re making an amateur mistake. You must keep your business and personal expenses separate. Again, it’s for tax reasons because you don’t want to invite the dreaded IRS audit. It’s also important for evaluating the financial health of your business and determining whether you need to opt for some new financing options.
It’s easy for a business owner who had a bad month to assume they can just dip into their personal savings account to make up the differences. You can, of course, but that’s a slippery slope to go down.
- Invest in Your Retirement
There’s no reason you can’t invest in your retirement just because you’re self-employed. Many banks have retirement accounts aimed at the self-employed. However, don’t pick up the first one you see. Do your research because there are so many accounts that this can get confusing fast.
Investing in your retirement means that you don’t have to keep working for the rest of your life. And if you do decide to get a conventional job you’ll always have this retirement account.
- Always Have a Goal in Mind
You need motivation to save and you need motivation to practice good financial habits. That’s where a short-term and long-term goal comes in useful.
The personal finance management platform CoinEDGE recommends this for the self-employed: “Setting realistic savings goals is the key to not overspending or having to make drastic financial adjustments when emergencies occur, or having to choose between paying your bills or doing the the things that you want or need to do, when the moment comes.”
The reason you need a short-term goal is that most of us find it difficult to get excited about saving money we’ll see forty years from now. We’re living in the present, so dream of that big vacation or that huge car. It’ll keep you going even when things aren’t going well.
Last Word – Practice Makes Perfect
Keep in mind that it takes a lot of time and effort to get personal finance right. You’ll make mistakes and you’ll spend big on luxuries from time to time, but if you practice the principles of good financial management those minor indiscretions won’t cause irreparable damage.
You’ll get better at this over time. Before long, personal financial management will become an automatic thing. You won’t even have to think about it.
What are you doing to make sure that you’re financially secure?