Home Budgeting Money 5 personal finance tips for the self-employed

5 personal finance tips for the self-employed

In the past job security was taken for granted, but as many businesses, large and small, feel the pinch on their finances, working for someone else is no longer the haven that it used to be.

Looking for a new job is also a very disheartening task, with few new positions being created and the employment sector stagnating.

However, with the number of businesses going under, there are gaps in the market and despite the tough economy, now could be a prime time to consider working for yourself.

Being self-employed may sound very liberating, but it is not a decision that should be taken lightly as it will make some fundamental differences to how you run your finances.

If you are sure that becoming self-employed is right for you, don’t just jump into it. The key to success is planning, planning, planning, and whilst this may sound boring, many people fail simply because of a lack of organization.

It is important to put your finances into the best order possible before becoming self-employed, as personal finance will be hard to access for a while once you make the switch.

Simple steps such as checking you do not qualify for a better deal by using an online mortgage calculator can help you to maximize any spare money. A mortgage calculator from a comparison site can also help to highlight whether your current lender is competitive in the market.

When setting up the business it is very easy to simply plump for a business loan, if you can persuade a bank that your business plan is viable.

However, if an injection of capital is required at the outset, it is better to source from alternative means if possible, otherwise, the business is already under financial pressure before you start trading.

For some people, remortgaging to a different deal helps to free up some cash; a mortgage calculator would give an idea if this is an option. However, this is not an appropriate route for everyone and should be given careful consideration.

Once the business is up and running, it is essential to constantly budget, as you never know when there is going to be a cessation of money coming in.

When you are employed you know you can rely on receiving your paycheck on time and with regular frequency, whether that be weekly, fortnightly, or monthly.

When you are self-employed, you are reliant on customers paying their bills on time and economic difficulties in other areas can have a knock-on effect on bill payments.

It is not unusual to have to go an extra few weeks with little income at times when you are self-employed and having to keep dipping into savings or use credit is not an ideal way to survive financially in the long term.

It is also very easy to forget that not all the money sitting in the business account belongs to you. Unlike the employed, self-employed workers pay the IRS separately, meaning that some of those dollars belong to the taxman.

Self-employment is a good option for some people and with commitment, a lot of hard work, and sometimes a dose of good luck, it can work very well.

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