Being self-employed can be a challenge, especially when starting out. One of the best things you can you is determine how to rock your finances and keep yourself in the black. It’s no fun feeling as if you have no control. The point of being the boss is to have freedom and control in all areas of life. Here are a few tips:
Have Emergency Cash
It’s best to over plan when it comes to having your emergency fund. You need to look at every expense – both personal and business to be prepared for an unexpected rainy day. While it may be customary to have three to six months of bills stashed away, a year provides a better cushion for a self-employed person.
Find a Place to Put Your Money
Savings accounts are good, but you want to put your money where it can grow and not be disturbed. Considering other vehicles like an RRSP, TFSA and/or a Tax-Exempt Permanent Life Insurance Contract, can help save money and give you tax benefits.
Have Different Budgets
Just like you should separate finances, it’s best to have two separate budgets – one for your personal finances and one for the business. You’ll have a clear picture of what’s coming in, what’s going out, and where you need to tweak.
Keep Finances Separate
You should keep your business and personal expenses completely separate. This will make bookkeeping easier, and cut down on the headaches. Have a separate checking and credit card account for your business, in addition to saving taxes and paying business expenses. All of this should occur before you pay yourself.
Reminders & Receipts
You want to organize all your receipts and digitize them as much as possible. This assists in keeping yourself accountable, and you will have backup if Canada Revenue Agency comes calling. Set reminders on the days you need to do bookkeeping, send invoices and pay bills. This creates a schedule that helps you stay on track and prevents you from feeling overwhelmed.
Save for Your Taxes
It’s important to save for your taxes and pay them first, before you save money. You don’t want to be in a situation where you haven’t paid taxes and get yourself in hot water. Estimated taxes are required. If you don’t pay them, you will have extra interest and penalties, costing you more money.
Create Financial Goals
Is there something you want or need for your business or personally? Make a goal and work towards it! Once you have a budget in place, you will be able to determine how much you can put away to reach that financial goal. Being able to see your goals and how close you are to reaching them gives you motivation.
When creating your savings goals, use percentages instead of actual dollars. When you have percentages, you may have more money to put away, especially if you have a bonus or extra money one month. Using percentages also helps provide perspective when planning for the future. It provides an incentive you don’t get when estimating based on a dollar amount.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.