As a self-employed person, it can be challenging managing your finances all by yourself. The truth is that what full-time workers experience in their finances differ hugely from what you experience being self-employed. And whether you are new to being self-employed, or have worked for a few years as a freelancer, it is unlikely that you have frequently struggled with organizing your personal and business finances to make the best of your tax deductions. We share tips in this article, for Successful financial future for self-employed. Read our steps to gaining financial freedom.
But before we discuss tips for people who are self-employed to create a successful financial future, let’s consider the challenges of managing finances as a self-employed.
Here Are A Few Challenges Of Managing Finances As A Self-Employed
1. Being Able To Know What To Categorize As Business Expenses
There is often a mix up between personal and business expenses for most self-employed. You would have to be able to identify what qualifies as business expenses from your personal expense. If you have to travel to and from a store to acquire office supplies, that might not be categorized as business expenses. But the cost of acquiring stuff to and from a work event or from your business client, may count as business expenses. You’ll be able to harness certain tools that can track your miles automatically when you travel to meetings, purchase gas going to and fro meetings.
Do everything you can to separate these expenses and categorize your business expenses as an easier way to maximize your taxes.
2. Irregularities In Income And Expenses
As a full-time employee, most of the time, your income is predictable and regular for a period of time. But as a self-employed worker, aside from the fact that your payment dates are not regular, the amount you earn each month changes and is unpredictable. So, if you develop a budget, it could be difficult sticking to it as a self-employed unlike people who are full-time employees.
3. Make The Best Of Your Tax Deductions
As a self-employed, it takes lots of hardwork and patience to maximize your tax deductions. There is a likelihood that you’ll overpay the IRS while you could have saved yourself a lot of dollars which could be in thousands, if you haven’t figured out your business finances and tag all the appropriate transactions as business-related.
Another thing to consider is that if so much of your personal expenses is lumped along with your business expenses, your tax deductions could create red flags with the IRS because of its enormity, which could result in a dreaded tax audit. And this is aside the need to figure out and make quarterly payments of your estimated taxes which never cross the radar of full-time workers.
4. Organize And Separate Business And Personal Expenses
Self-employed workers often find it difficult organizing their finances and separating personal expenses from that of business. Find every way to get this done. Except the lunch you bought was during a business meeting or forum, allow it stay within your personal expenses.
So, whatever your challenge is, whether to separate and organize business and personal expenses, maximizing tax deductions, setting up a budget within variability of your earnings, or determining what aligns as a business expense, there are crucial tips for a successful financial future for self-employed which you should consider.
6 Crucial Tips For Successful Financial Future For Self-Employed
1. Organize Your Personal And Business Credit Cards And Account Separately
If you have all your financial information disorganized and mumbled together, it would be difficult having your finances organized. If the same bank account is what you use in paying for your domain renewal and personal leisure materials, you will easily lose track of proper categorization of your finances. This would also make it difficult to use tracking tools for your expenses.
To organize your business expenses, link expense tracking tools to your business accounts. This would make every of your transaction logged in, timed, dated, and with a digital receipt provided.
Totally separate personal expenses from business expenses to avoid any form of miscalculations, and categorize transactions to tally with expenses especially for the time of sorting taxes.
2. Avoid Handling Your Finances Alone
If you intend to cut down costs logging your startup expenses in a spreadsheet manually is something you might be tempted to do. But the reality is that, aside from the tiring nature of the process, there is also a high possibility of committing errors. So, wouldn’t you rather bring on helping hands to make your effort more accurate? You can consider software platforms that can equip you with required tools that are built on expert knowledge. You may want to view it as a co-worker in your device helping out with your finances.
Harnessing expense tracking software is an efficient way to organize and track your business income and expenses. Budgeting softwares would help establish a regular budget that works for you. If it seems you have the likelihood of spending beyond your budget, the budgeting tool you use will give you an alert. And you’ll be able to act to bring about a proper balance.
There are numerous accounting softwares that would help you achieve both expense and budgeting needs if you wish to combine them. You’d be provided access to combine features tracking overdue clients, automate invoicing, and they would be able to organize your business and personal expenses using your expense information and revenue.
They will also help in maximizing your tax deductions. And with some platforms, you’ll be able to track your business traveling miles automatically.
3. Get An Accountant
Several self-employed people do not bring in the service of an accountant on time into their businesses. This only makes the job more difficult and disorganized. Employing an accountant to track your expenses, do you taxes among your other financial needs – even on a part-time basis – will go a long way to help you focus better on making money and attending to other business needs.
You’ll importantly need a tax account and bookkeeper, to help your small business to succeed. You’ll need to track and categorize every dollar coming in and going out of your small business to properly file your taxes. For your taxes, it is crucial to have a good understanding of your taxes – your backlog of debts, and consider planning for quarterly taxes as a self-employed.
Ask your accountant – if you have one – about your previous year tax payment, or consider looking up for yourself, and divide the figure by twelve. Then, you should focus on setting that amount aside monthly so as to stay prepared when tax payment comes. A general approach to go about it is to separate 20% of your income every month. Set reminders for this on your calendar, so as to be able to stick with your plan.
4. Think In Percentages
One of the leading challenges of people who are self-employed is how variable income gets to be. For a period of months, business would be booming and the cash will be rolling in. But in some other time, your clients would be on break and business would be boring and dry. Accounting for your incomes – savings, investments, and salary – in terms of percentages will help you keep account of the situation.
So, instead of you setting aside an amount of your earnings towards every category, you could just think of it in terms of setting a percentage aside. And it shouldn’t be a way to give no regard to your fixed expenses. For instance, your rent still remains necessary. But things like your vacation funds, savings, and budget for reinvestment should be looked at in terms of percentages of your earnings and not a fixed amount of money.
5. Learn And Keep Learning
You have already made a move towards learning by reading this. In most cities, you’ll likely find great opportunities to learn something about your business. Online platforms like Coursera and Udemy are options to think of. Improve yourself. Educate yourself.
Google search for possible classes take hold in your area. Leveling up your skills will always give you increased advantage in your business.
6. Set Goals And Get Paid
Everyone sets goals, yes, maybe, but ensure to set financial goals for yourself and your business to have a successful financial future as a self-employed. Do this separately. And one thing you should always remember is that as a working staff of your own company, you must be paid. And it is fine if you think you can’t achieve this often for now, but it is a nice idea to have a timeline for your target when your business becomes more profitable. This may come through in a few months, but most businesses don’t become very profitable until after some years.