Going self-employed, or starting your own small business, will require anyone to learn a selection of new skills. You’ll need to get a basic understanding of accounting, and how to manage cash flow and taxes in a world where your employer doesn’t deal with these things for you. You may also need to learn about building your portfolio in your industry, marketing yourself to customers online, and making your brand stand out. One of the most important things you can learn to protect both your new business and yourself is how to budget more effectively. A good budget will make it possible to manage an unpredictable income. Here are some quick tips to get you started.
Separate Personal and Business Expenses
First, you’ll need to separate your personal and business expenses so you can get a good idea of how much the business spends each month, and how much you spend. This should be easy enough if you can open two separate bank accounts. Not only will separating your expenses make it easier for you to budget for both your professional and personal lives, but it will help with tax seasons too. Make sure you save enough cashback in your business account each month to ensure you can pay the taxes you’re going to owe at the end of each month. If you’re not sure how to prepare, most experts recommend saving about 20-30% of your earnings.
Look for the Low Hanging Fruit
Once you’ve got your business and personal accounts separated, you should be able to see opportunities to save money or reduce costs in both parts of your life. You might notice in your business account that changing to a different supplier will save you a small fortune on getting the same number of materials. In your personal account, you may realize refinancing your student loans into another, the lower-cost loan will help you to reduce the outgoing expenses you need to worry about reach month. This also reduces the pressure on you as a business owner, because you won’t have to earn as much each month to pay your bills.
Create a Buffer
When you earn more than usual as a self-employed person it’s tempting to give yourself a well-deserved bonus. However, the best thing you can do is use that extra money to create a buffer. Ensure you have extra cash in your business accounts so you can continue to pay yourself a decent wage (enough to pay the bills), even when you’re not earning as much as you usually would. Also, be sure to insure yourself against accidents in case of any emergencies.
As you progress throughout your life as an entrepreneur, you should also be able to get a reasonable insight into when you’re more likely to earn more money or less money than you do typically. Planning for these seasonal changes in advance will help to protect you and your family. Remember, budgeting as a self-employed person can be complex, particularly if you need to manage your personal and professional expenses at the same time, but without a budget, you could find yourself in significant trouble.
