How to Manage Your Finances When You’re Self Employed

Posted: 08.27.2019

Being self-employed is a dream for many. The opportunity to do what you love from home can help you save money and maximize your time in many instances too. If you’re a parent especially, you could do with the flexible hours and work schedule. A responsibility that comes along with being self-employed is filing your taxes and managing your money. This can be a major transition if it isn’t something you’re used to, so having the right knowledge is essential. Here is how you can manage your finances if you happen to be self-employed.
 
Learn About How to File Taxes
 
As mentioned above, one of the things you’ll need to do as a self-employed person is file your own taxes. Self-employment tax is comprised of Social Security and Medicare taxes and the tax rate is 15.3%. You can figure out what your self-employment tax is by filling out the Form 1040. As long as your net earnings from self-employment are over $400, you have to pay self-employment taxes.
 
To make the tax burden lighter, deduct office space, childcare costs and vehicle expenses if you have any. In case you aren’t sure about how to file or need some help, you can always hire a certified accountant to help. This will ensure you don’t make mistakes and end up with fines or owing the IRS.
 
Maintain Good Credit
 
Seeing as there is sometimes a level of financial insecurity as a self-employed person, having good credit is crucial. You never know when you may need to borrow money and you want to be able to do so at a good rate.
 
On the flip side, if you’ve got piling debt, you’ll end up spending more than you earn trying to pay them off. In case you are in serious debt or have collection agencies calling you, visit https://www.crediful.com/collection-agencies/ to get the right information regarding how to deal with it.
 
Set a Budget
 
Budgeting is one of the smartest things that you can do when you’re self-employed. If you don’t have a steady income, doing so can help you get through dry seasons. For those just starting out as a self-employed person, it may be worth cutting back on unnecessary expenses. This way, on months that you fall short, you shouldn’t end up far behind on your bills.
 
Create a budget based on your forecasted income and existing expenses. As your income increases, you can always revise the budget, but remember to live below your earnings to be on the safe side.
 
Save
 
Setting up a savings plan will help you better manage your finances. It will tell you what you need to work towards and how much you’ve got to set aside every month. You can start by saving smaller amounts so that it’s easier to stick with every month.
 
Eventually, you may want to think about ways to invest your money or what exactly you want to do with your savings. It is advised that you have an emergency fund which consists of six months-worth of savings where possible.
 
Get a Private Pension
 
A private pension will ensure that while you work, you’re also securing your future. You don’t have the luxury of being able to save with an employer, so you’ll have to be the one to do it yourself every month. A retirement plan option that you may want to explore is a Traditional or Roth IRA. This is ideal if you’re going to be saving $6,000 or less a year. The Solo 401(k) is also a good option if you have no employees and see yourself contributing no more than $56,000 annually.
 
When going about choosing a retirement plan, you want to think about the tax implications of your savings as well as diversifying your portfolio. Try to think about what kind of life you see yourself living after retirement and how much you’ll need to save to do so.
 
Diversify Your Income
 
It’s very important that you continuously look for ways to diversify your income when you’re self-employed. The more streams of income you have, the better, so avoid relying on a single stream. You can either maximize your skills or explore ways of making residual income such as through renting out rooms in a property you own, or investments in the stock market. Making use of opportunities online such as writing and selling an e-book or selling webinars could also bring in money when you need it.

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