Self-employed people might be an ace in their respective fields, but there is one thing even they get stuck with, which is how to save money smartly. The essential factor to save money while self-employed is budgeting your monthly expenses with the varying income every month. As a result, budgeting and financial planning get a little complex and haywire.
Once you decide that you are meant for a home-based business, the next step is to develop a business plan, which defines not just your business and financial goals but also involves expenditures.
Here are 5 smart tips to organize and save money while self-employed.
1. Never underestimate the expenses
The very first aspect to save money while self-employed is to never underestimate your expenses. We all have been through situations where no matter how well we try managing our expenses for a month, somehow an unknown expenditure always crops us.
Hence, it is advised that you always put aside a little more amount of money for the monthly expenses than required. Keeping more money than needed will help you be prepared for sudden expenses, and at the end of the month, you can always transfer the remaining amount, if any, to your savings account.
2. Manage your income
With a budget, self-employed people can manage their varying income flow each month. So, start by determining your average monthly income. Calculating an average income will help you cut down on the not-so-important expenses like dining out and shopping.
If there is a month when you earn higher than average, you can transfer the extra earned amount to your savings account to accommodate the less lucrative months. Knowing your average monthly income helps you do effective financial planning, thereby helping you save money while self-employed.
3. Think in percentages
For uncertain monthly earnings, it is better to calculate expenses and savings in percentage rather than in specific amounts. In other words, instead of putting aside a particular amount for categories like emergency spending, taxes, and retirement, set a percentage of your monthly income for these categories.
Percentages will help you contribute more to the most vital financial goal when there is high-income flow in a month and less when the inflow is less. Design a budget worksheet for all the substantial financial categories to help you understand your priorities and how much would you like to save for each.
4. Keep records
No matter how trivial the amount you have spent is, make sure you keep records of all your expenditures. Keep your paperwork always up to date, including the copies of the receipts for travel, and meals (If you are working as a freelancer for a firm/company).
There are many financial and budgeting apps which can help you record your daily expenses easily and without any extra work. In fact, if using a budgeting app, you might not be required to make a budget worksheet at all.
5. Track expenses
Another essential factor which you should give some consideration is how are you tracking your monthly expenses. Are you entering every expense in an excel sheet or a budget worksheet? Considering that the income in a self-employed business/job fluctuates, it is critical for you to know how and where is your income flowing out.
Tracking expenses will help you cut down on the unnecessary spending, thereby make you analyze and understand the areas where you should spend.
As we mentioned, by being armed with a budget, self-employed people can have the same financial freedom as they have in their work. With the uncertainty every month, it is imperative and crucial to managing your expenses smartly.
— The Independent Mom™ (@Indpendent_Mom) 24 de abril de 2017