Being self employed is great. It can be a little risky to go into business on your own, but it’s often the best way to take charge of your career. After all, you can make your own calls, network with the people you really want to connect with, and actually have the time to develop the ideas that you feel passionate about.
All in all, working for yourself means twice the amount of toil, but it also means you can get what you really want out of life. It also means you’re the one person in charge of your financial future, and it’s up to you to protect the income you make.
That’s a tricky thing to wrap your head around when you first start out. No matter how much experience you already have in the working world, you’ve got a whole new challenge to take on here.
Let’s make sure you’re up to the task. If you’re a new self employed business owner, here are the financial planning tips you’ll need to remember.
It’s Best to Talk to an Accountant
When you’re earning income that isn’t already taxed when it reaches your pocket, you’re going to have more stringent tax filing needs from this point on. When you’re a business owner, this can get pretty complicated, even when you’re earning a low amount after just starting out.
As such, we highly recommend speaking to an accountant. If you don’t want to hire one to do your taxes and/or bookkeeping for you, getting the lowdown from a qualified professional on your new tax obligations is essential.
You need to know the ins and outs of what forms you’ll be using, how you’ll be declaring, what expenses you can claim, and how you can keep your records as accurate and up to date as possible.
It’s usually best to have an outsourced accounting service working on this for you, but it is possible to learn to do it yourself. It may need to be quite a quick adaptation, however, as you could already be close to the filing period when you first start up your own business.
Save for the Future ASAP
When you’re your own boss, you’ll also have to make pension contributions on your own dime too. Of course, you may already be doing this, but it’s unlikely you’ll be able to get your contributions matched by anyone else. At least, not in the same way you’re used to.
This means you need to start saving for the future as early as possible. Whether you’re interested in a traditional pension like a solo 401(k) or not, you’ve got plenty of options for keeping your money safe for when you’re older and want to retire.
Plus, there are plenty of investment options on the market too. Investing in both tangible and non-tangible assets can bring back a good return at the end of the year, but you’ll want to be careful about how much money you’re putting into your funds and accounts.
You’ll Be Responsible for Your Own Health Insurance
Most people get health insurance through their employer. Now you’re your own employer, you’re going to be responsible for ensuring you have coverage for any and all potential medical needs.
For some people, this can be a tricky shift. You might never have needed to research your health insurance options before, or know anything about the terms and policy agreements you need to look out for.
The first thing to understand is your needs. For example, do you already have a pre-existing condition that might affect what you can get? Or is there anyone else in your family who has a plan you could sign onto?
Do plenty of research before you agree to anything. You can head online to the government’s insurance portal for a list of the most important things to look out for. They also have a variety of tools you can use to compare insurance coverage and how that might affect you.
You May Want to Consider Income Insurance
When you’re self employed, if you ever have to stop working, you won’t be able to access sick pay during this time. You can only earn when you’re good to work, and that can make it difficult to keep your income steady and always coming in.
Many self employed business owners opt to invest in passive income methods to cover this, and that’s something you can consider too. Selling e-books or online courses, for one, is a great way for someone with a skill to supplement their income without having to do much work.
But you can also think about income insurance. This insurance only kicks in if you’re laid up for a long period and unable to access your usual income streams. Effectively, it’s a form of ‘sick pay’ you can grant yourself; just be sure to keep up with your monthly premiums in the meantime.
Always Price Yourself Properly
Finally, never let your skills be undersold. Whatever it is you’re turning to as a self employed business owner, make sure you factor your own time and needs into your price point.
Underselling yourself may earn you some quick and easy clients to begin with, but it won’t make you anything significant in the long run.
Value what it is you do, and don’t be afraid to bring this number into negotiations. You’ll be surprised at how many people will be willing to pay it.
Thinking of Becoming Self Employed in the Near Future?
Then you’re going to need to get your head into the right mindset for handling finances.
Think about what you’ll be losing access to when you become your own boss, and how that might change the way you budget, spend, and track everything going in and out of your account.
And if you can, get an accountant on board to help you. Tax obligations and allowing for expenses tend to be the hardest challenge of all!