Making the leap and becoming a freelancer can be both exciting and frightening.
Once you are financially ready to be self-employed, you will need to control your financial situation and may have to modify your spending plan to ensure that you have enough money to cover your monthly expenses. Figuring out how to calculate your budget can be a difficult process because your payday may not arrive at the same time every month.
In addition, there may be months where you may have to live on savings instead of a new salary. Therefore, it is very important to understand how to budget and account for any delayed income.
Here are some quick tips for budgeting when self-employed!
Have an organised system
If you are a self-employed person, you will have to pay taxes on your income, so it is best to treat it as a similar expense to other bills.
Make sure you have a system to organize your receipts, bills, and invoices; you need this information when you submit your tax return every year.
Leaving your taxes until the end of the year will mean you will have to pay a lot of money at once, which may ruin your budget for the month.
Don’t underestimate the importance of a reserve fund!
Any budget should consider debt repayment, as well as regular and anticipated expenses.
Whether you’re a full-time employee or self-employed, it’s important to set aside funds for unexpected situations or expenses (like losing a job or an important client).
Using reserve funds (also commonly referred to as emergency funds) can ease difficult financial conditions and prevent the use of high-interest debt, such as credit cards, during periods of financial stress.
Try to work hard to build your savings. You may want to consider allocating a certain percentage of your monthly income to the fund.
That amount can be automatically deducted from your bank account each month so that you can stay on track.
Estimate your monthly earnings
Although your income from self-employment may vary, there is nothing wrong with estimating your monthly income as long as you do not spend it before you receive it.
You should also include basic expenses, such as bills and rent, and estimate your other personal and business expenses in your monthly and weekly budgets.
If you have signed a contract for a client’s work, you can easily calculate your monthly income.
This way, you know how much you can afford and what you might need to do to reach your monthly budget forecast.
Create a balance sheet
The balance sheet shows the value of everything your business owns, owes and is owed money by during the fiscal year.
You must add current assets, long-term assets, and liabilities to form the financial statements of your business. Creating a balance sheet can give you a good idea of how your business is performing and, as it’s common for many new businesses’ to not turn a profit until at least the second or third year, how much you’re able to pay yourself.
To wrap it up
Staying on budget, especially when self-employed, can be a difficult task. If you need the help of an accountant or financial expert to create a balance sheet or to help you avoid mistakes when doing your taxes, check out Count’s services!