Good morning! Like a lot of people, my employment situation has changed quite a bit since March 2020! I’m doing some contracting and this article might interest you if you’re in a similar situation. Let us know if you have any other advice!
Being self-employed means controlling your work, how much you charge, and what services you wish to offer. You also get the opportunity to build your wealth and work towards financial stability. However, poor financial management decisions can do the exact opposite of ensuring your financial well-being. This makes it essential to adopt strategies to ensure that your finances are in good shape. Here’s how to achieve this when self-employed.
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Separate your business and personal finances
It’s not uncommon for self-employed people to treat their business and personal finances as one. However, you’d reconsider that strategy once you know the benefits of separating them. First, tracking your business’s cash flow and how much profit you earn is easier. Likewise, you can enjoy tax reductions, access to business-only financial services, business credibility, and efficient accounting. In the event of hard times that affect your business, you can rest assured that your personal assets won’t be lost. Seeing these perks, you want to separate your business and personal finances if you haven’t already.
Begin by obtaining an EIN to enable you to open a business account, file your business taxes, and establish your business entity type. Consequently, avoid using your private account for business transactions and open a business account for the best results. You also want to acquire a business credit card to build your business credit score, so keep this in mind. Here are more practical tips you can utilize for the best results.
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Pay yourself
It’s easier to assume that the money in your business account belongs to you, although that’s farther from the truth. This is because you need to pay salaries (if you have workers), utility bills, taxes, and other business costs. Therefore, you may settle these without setting some money aside for your personal use. Moreover, setting aside money can help you save for future business growth. These reasons make it essential to pay yourself. To get started, determine if you want a monthly salary or owner’s draw, as they have pros and cons. You also want to consider your business stage and structure to determine how to pay yourself. As a tip, set a tax budget to ensure that you are up-to-date with your taxes and are consistent with the amount you take.
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Invest your earnings
Admittedly, your business may bring you enough money to cater to your needs. However, you can still build wealth and up your financial game by investing your earnings. And one way to do this is to invest in your business growth. This way, you don’t have to go for loans and increase your debts. You can use your profits to get new and improved work tools, develop and launch new products or services, and pay off existing debts. You can also save it as emergency funds when your business experiences financial difficulties. Another way to invest your earnings is to buy bonds or equities, so keep this in mind. You can also consider other options like ETF trading, so keep this in mind.
