8 Pieces of Financial Advice For Self-Employed Workers

by Alex Feldman

November 27, 2018

Being self-employed is an appealing prospect to many, and it certainly can bring a range of benefits, such as deciding your own working hours, being your own boss and the opportunity to be as flexible as you wish with your working hours and clients.


While there are many benefits, it is not for everyone because it can pose its own challenges. One of the main areas of concern for those that are self-employed is money; you will not have a stable form of income and what you earn one month could be very different from the next. With this in mind, here are eight financial tips for those that are currently self-employed or thinking about making the switch.


  1. Separate Business & Personal Finances



One of the most critical steps to take is to separate your business and personal finances. In addition to making this more manageable when it comes to completing a tax return, this can make it much easier to manage your money, track your finances and avoid you using one type of funds to cover the other.


2. Establish A Clear Budget



Budgeting is important when your income fluctuates, but it can also make it challenging. The 50/30/20 budgeting rule is a good one to adopt although you may want to alter this slightly to involve more savings. This budget sees 50% of your income go to essentials like food and rent, 30% on non-essentials like clothes and entertainment and the remaining 20% on savings, debt payments, and so on.


3. Set Aside Money For Taxes First



When you are self-employed, it is your responsibility to pay your taxes. It is a smart move to set this money aside as soon as it comes in so that you know that you will have enough when the time comes to pay your bill.


4. Monitor Income & Expenses



You need to carefully track your monthly income and all expenses in order to run a successful operation but also for tax purposes (you will be able to claim on certain expenses). There is software that can help you to do this which could help you to run a smooth operation and maximize profits.


5. Build A Rainy Day Fund



Due to the nature of the work, there may be times where it dries up which can be distressing and cause financial difficulties. It is for this reason why it is intelligent to have a rainy day fund so that you can cover groceries, mortgage payments, and other expenses. Having an emergency month to include at least three months of financial aid can be helpful, but you may want to change this depending on your financial situation and the demand for work.


6. Obtaining A Mortgage



Many self-employed individuals worry about getting approved for a mortgage due to the unstable nature of their work. While you may not be approved with some lenders, there are those like Lenda that work with less common borrowers such as self-employed individuals provided that you have at least two years of tax returns. There will be specific criteria to meet and a few different loan options available, but you can find out more about this option by visiting https://www.crediful.com/mortgage/lenda/.


7. Plan For Retirement



You must also think ahead to your retirement and set money aside for the future. There are a few different retirement plans for self-employed individuals to consider so do some research to find out what option is best for you so that you can build for a stable and happy retirement.


8. Use Percentages Instead Of Dollars



When it comes to budgeting and setting money aside, you should always use percentages instead of dollars. This is because your income is likely to fluctuate with each month so it may be unrealistic to set aside $300 for your rainy day fund one month but not be enough for high earning months. Percentages allow you to manage your money intelligently each month so that you can lead a comfortable lifestyle, save enough money each month and run a successful business.


Being self-employed can be highly rewarding, enjoyable and exciting. It can also be a big challenge particularly when it comes to managing your money. These tips should help you to either get control of your finances and build towards a healthy financial future or to hit the ground running if you are just starting out. The key is to track your finances each month carefully and to make sure that you are setting money aside for essential expenses like tax, mortgage payments, a rainy day fund and to build a pot for your retirement.