Starting your own business is exciting. Flexible schedules, convenient hours, and self-determination are just a few of the reasons why more people are working for themselves these days. If you’re just beginning this adventure, one of the more important issues is to figure out how to manage self-employment income. Read more for eleven proven tips on the best way to do this.
1. Create a budget and stick to it.
You may have to deal with uneven income, especially in the beginning, but monthly expenses like rent, utilities, gas, and phone bills are unavoidable. Therefore, apply some discipline, and create a realistic budget. Then stick to it.
2. Fund your savings account.
Think of this as an emergency fund. Prioritize funding this account in case something comes up, such as unexpected medical needs or car repairs. Build it up so that eventually it will be enough to cover six months of expenses. This should be funded before any vacation or extra spending occurs so that you and your loved ones are protected during potentially slow months.
3. Pay yourself a salary.
When considering how to manage self-employment income, it’s best to put yourself on the payroll. Determine how much money you need to live comfortably each month, and pay yourself that amount. Sometimes you will have a better-than-normal period. Leave the extra dollars in your business account to help get through those periods that aren’t so great.
4. Set aside money for taxes.
Determine how much self-employment tax you will need to pay in addition to your regular income taxes. Making quarterly tax payments can help you avoid under-withholding penalties. Therefore, some accountants recommend that self-employed business owners open two separate savings accounts. One is where you deposit money received for your products or services. The second holds a percentage of your earnings for those tax payments.
5. Plan for retirement.
Don’t delay in putting aside money in a retirement plan. There are lots of simple and convenient options. For example, open up an individual retirement account or solo 401(k). It’s never too early to start thinking about how much you need for a comfortable retirement and then determine the dollar amount you need to put aside each quarter in order to get there.
6. Stay organized.
If possible, keep your business area free of clutter and, when working from home, separate from the rest of the house. Take advantage of filing drawers and cabinets, as well as apps on your computer and mobile device to stay on top of deadlines. Learn to create spreadsheets for almost everything. Complete all of your financial paperwork ahead of due dates, especially when billing clients or customers. File copies of all receipts, so you have them when tax time comes around.
7. Keep personal and business finances separated.
Maintain separate accounts for all business and personal finances. This will help you keep track of income and expenses. It will also make tax time so much easier. Keep detailed records and take advantage of organizing tools available to self-employed business owners.
8. Pay off debts and stay debt-free.
Set debt repayment goals. Make this one of your most important priorities. Paying down your debt will decrease interest payments, raise credit scores, and allow you to redirect more money toward your growing business. If using a credit card for business expenses is unavoidable, open an account specifically for that purpose or get a small business loan instead.
9. Get professional help.
Find and utilize professionals who can help you realize your business goals and show you how to manage self-employment income. This includes lawyers, insurance agents, financial advisors, and accountants.
10. Consider your insurance needs.
Make sure your business is properly insured. This includes health, car, life, and any business insurance you might need. Otherwise, you’re putting you and your family at risk. This is one of the best ways to protect your finances.
11. Take ownership of it all.
Remember that you’re in charge no matter how many professionals you hire for business needs. Help them help you by researching and understanding your portfolio better than anyone.