Being self-employed and managing your finances is a balancing act that can easily topple over if you do not keep track of your money down to the last cent.
Having a sound financial strategy can help you stay on top of your cash flow, expenses, credit score, and being able to create a financial safety net when things do not always go as planned. Here is what you can add to your financial checklist if you are self-employed.
Before you spend, save
One of the things many self-employed people have to deal with is chasing paycheques. Some months could be great, and your invoices are paid on time, while others may feel like trying to draw water from a stone.
A rule of thumb to follow is to save before you spend. The common adage is that it takes money to make money, saving pays-off later on when your business needs to draw from reserves or when tax season swings buy.
Having an emergency fund can help you pull through, especially when business is not booming. Work towards putting aside at least six months' worth that will be able to cover your living expenses. Increase the months if you manage to make more money. It will give you enough breathing room when you hit a slump to figure out the next move.
Save on tax
Tax is something that you will have to face. However, finding enough wiggle room after tax can be disheartening to entrepreneurs that are just starting. Analysing your finances from a tax perspective will help you see where you can cut-back to save on tax and how much you will have left over.
This also means knowing what business expenses can be written off such as equipment to reduce how much you pay. Using a qualified accountant can make it easier to spot which areas you can maximise on so you can focus on how to grow your margin.
Make reviewing your finances a habit
The word 'budget' has surely become a mantra for small businesses. If you do not have one in place, then it is time to. You should treat your business and your personal finances in the same manner. Track your finances and stay on top of it. Knowing what comes in and out of your account can prevent a domino effect where you mismanage your personal finances and end up having to draw from your business to keep you afloat. Stick to reviewing your finances weekly and monthly.
Most people insure their assets but forget about the most valuable asset, their life. You may have many plans, but protecting your financial security is equally important when life happens. A life cover can cover you for any terminal illnesses, paying daily expenses, or any possible debt that you may have when you pass on, protecting your loved ones from carrying the financial burden when you are no longer around.
Make paying off debt top priority
Reducing your debt whenever possible is paramount. While there is such a thing as good debt that can help your businesses credibility with lenders, it is vital to reduce your debt as much as possible. Not only will this give you peace of mind, but it can also help you expand your business without taking huge chunks out of your budget.