Self-employment is on the rise. After the pandemic, many people began turning their side hustle into a full-time career. You can work from home, manage your own workload and set your own hours. Self-employment has numerous benefits – and quite a few challenges as well. One of the most common challenges for the self-employed is, of course, finances. And more specifically, managing finances.
Suddenly, you have to budget for business expenses and sort out your own taxes. It can be quite a learning curve, but fortunately, we have four financial tips to keep you afloat.
It’s time to master the art of budgeting. You need to look at your average monthly income and define a budget from there. You could follow the 50/20/30 rule to keep things simple. Half of your income goes toward fixed expenses, like rent, 20% goes to your savings account, and the remaining 30% is for variable spending, like eating out. The percentiles may change according to your lifestyle. For example, you may spend more on housing if you live in a city centre flat.
Do not avoid tax. You need to familiarise yourself with self-employment tax and how to pay it. You should allocate a portion of your pay check each month to tax. Set the money aside in a separate account, so you’re not tempted to spend it throughout the year. You need to register for Self-Assessment online and file your tax return each year. For example, the Self-Assessment deadline for 2020/21 isn’t until January 2022. You have plenty of time to sort out your taxes and keep your books straight.
Every business needs insurance. You need to think about the financial and medical risks of being self-employed. If you employ other staff, you need to have employer’s liability insurance and other types of insurance. Think about what will happen if your laptop is stolen or damaged. You need a backup plan in case to protect yourself and your business.
Plan for the future
You are in charge of your finances, and you need to prepare for the future. Avoid taking out an overdraft or extra credit cards to cover the cost of your new business. You will be subject to large fines and charges that can quickly drain your account.
If you have a big holiday coming up, you need to plan to take some time off. You don’t have annual leave or sick pay when you are self-employed. You need to make sure you have enough money to cover your time off.
Business loans can help you buy equipment or hire a new employee. Evolution Money offers loans to people with bad credit scores. You can access extra funding and get your business off the ground.
Keep a close eye on your finances and prepare for any hurdles ahead.