Have you ever dreamed of being your own boss?
It certainly comes with its own set of perks; there’s no one to yell at you for being late, no one to tell you what to do, and no one to boss you around in general.
Yet, with great power comes great responsibility; in this case, great financial planning. When you’re self-employed, you’re not just your own boss but also your own financial advisor and accountant.
Now, knowing that these things can get a bit messy, we compiled a list of five essential financial tips to help you accomplish your goals.
Take a look down below.
1. Build an Emergency Fund
Whether you’re a freelancer or a simple contractor, your income is a lot more sporadic than that of a salaried employee.
To counter this, you need to create a stash and start saving for those rainy days.
This will act as a neat buffer zone for when you hit a dry spell (or two), essentially keeping you on your own two feet.
Besides an emergency fund, you can also work on opening a proper savings account with an automatic savings mechanism.
That will allow you to set aside some cash each month – totally hassle-free — without having to worry about missing a payment.
2. Create a Budget
Having irregular income doesn’t warrant your expenses to be erratic as well; a smart budget is more likely to help you fend off any financial difficulties that may come your way.
Also, don’t waste time with a pen-and-paper budget – use some smart apps instead.
Expense tracking software such as Mint will give you a much better idea on what you’re spending your money on.
What’s more, you can create your own goals and set alerts for when you go over budget.
Mvelopes is even better as it allows you to create a virtual envelope system where you assign a budget to each category; for instance, clothing, travel expenses, luxury, etc.
Invoicing apps are yet another necessity for self-employed workers as they let you keep tabs on who owes you money and when the payment is due; important for keeping a positive cash flow.
3. Plan for Retirement
Planning your retirement early is essential as, unlike salaried employees, you don’t get a pension plan from your employer.
Hence, you need to rely mostly on yourself to make that sound investment, if you wish to enjoy your golden years.
For instance, running a low cost self managed super fundis an excellent way to save up for retirement. It is simple, affordable, and you have full control over how your super gets invested.
The reason being, members of the fund are also its trustees – meaning, they are the ones to make all the investment decisions.
With some smart investment and planning, you can accomplish your retirement goals with ease, allowing you to focus on other aspects of your day-to-day life.
4. Get Insurance
When you’re self-employed – if you get struck by an illness or an injury of any kind, your financial health will suffer as well.
Consider getting some adequate medical cover and income protection.
Generally, these policies will pay ongoing income for the duration of your ailment.
As for the health insurance, get some annual medical cover – just to be on the safe side – and a life insurance policy if you have a spouse or a child to support were you to die, or any outstanding debt (such as a mortgage).
Additionally, depending on the type of business, consider buying some professional insurance to cover the cost of any potential lawsuits that may come your way.
5. Manage Your Taxes
Even though you’re self-employed, you still have to file annual tax returns and the like; look for tax deductions wherever you can.
Consult an accountant to see what your options are; for instance, home office deductions, business expenses, self-employment tax, etc.
That way you can save some money you’d normally ‘donate’ to the government.
If you work closely with your accountant you can even pay taxes in instalments rather than setting aside some cash for taxes each month.
The more you plan, the easier it becomes.
Create a rough outline and start accumulating those funds; the sooner the better.