Life as a small business owner or a self-employed individual is filled with ups and downs. You get to work on your own hours, choose the clients you want to work with, and potentially create employment opportunities with your business. On the downside, you’re dropping the steady paycheck and the employer-provided benefits, which means you have to be accountable with your finances and the work you put in.
Whether you’re a self-employed full-time or a small business owner, money management is an important life skill to have. It sets you up for a better future without sacrificing your needs for today. If you’re a budding small business operator who’s looking to make a living out of your business, these money management tips are for you. Here’s how you can manage your finances better as a self-employed individual.
- Have a diverse income stream
While having a steady income stream from one client is all well and good, it doesn’t mean you should work with a single client exclusively. As your self-employed career grows, you should expand your income stream to multiple clients, helping to minimize your risk of income loss in one fell swoop. If you have several clients and one of them decides to cut ties, it won’t hurt as much compared to having only one client.
The more skills you have, the more diverse your services will be. For example, you could be a copywriter, a social media manager, and an author at the same time. Try to learn new skills and use those to land new clients for a more diverse income stream.
- Save for an emergency fund
Self-employment is unpredictable. It’s possible to cash in 5-digit checks in one month and barely pull up the next. That’s why saving for an emergency fund is crucial in case financial hell breaks loose. In general, an emergency fund should be 3-6 months worth of your expenses, but considering the unpredictability of being self-employed, you may want to set a higher benchmark. Emergency funds prepare you for unforeseeable events like medical emergencies, loss of clients, unexpected repairs, and more.
If you haven’t yet saved up for an emergency fund, start now while you have the means to do so.
- Plan your monthly budget ahead of time
With operating your own business, there’s no steady paycheck. This means your monthly expenses may fluctuate depending on how much revenue you earn. To avoid financial pitfalls, plan your monthly budget ahead of time. For example, you can budget the money you earned in January and use that to cover your expenses for February.
Because your income may vary, you can use percentages to divide your salary between necessities, discretionary expenses and savings. Of course, these percentages may vary depending on your lifestyle, income stream, etc. so make sure to work with reasonable numbers that allow you to live comfortably without spending too much or vice versa.
- Set realistic goals
Most people think that being self-employed is it easy because they work on their own hours, but that couldn’t be further from the truth. It’s different when you’re not expecting a monthly salary, which can turn you into a workaholic if you’re setting up lofty goals for yourself. While it’s good to set goals for motivation, make sure that those goals are within the realm of achievability.
A good example is to set a realistic income that you can earn without getting burned out. The number should be enough to cover your expenses, add to your savings account, and give enough room for your discretionary purchases. Once you hit that number, you can give yourself a well-deserved break. This gives you time to recover and reimagine your goals that will fuel your achievements for tomorrow.
- Explore retirement plan options
The great thing about being self-employed is that it gives you freedom and flexibility. What it doesn’t give you is an excuse for skipping out your savings for retirement. You can’t be self-employed forever, which is why you should consider exploring retirement plan options while your business is going strong. Being self-employed, you don’t have to make super guarantee payments (SG) for yourself, but you may want to consider making personal contributions as a way to save up for your retirement.
There are a lot of benefits to being self-employed or a small business owner. You get to enjoy more freedom with your schedule and you have direct control over your income stream. When talking about long-term sustainability, having excellent money management skills is crucial to your success in self-employment. These tips will help you make wiser financial decisions and set you up for now and the future. SHould you require any further guidance or assistance it is imperative to get in touch with a debt management specialist in Australia who can give you the necessary advice for your own unique situation.