5 money tips I wish I knew when I started my own business that would have saved me thousands
- After I got laid off in 2015, I immediately started working for myself.
- I didn’t have an emergency fund, though, so I ran up my credit card bills when my income was low.
- I also didn’t know to set aside money money for taxes or hire professionals to help me.
Immediately after getting laid off from my full-time job in 2015, I became self-employed. The entire process happened very fast. I went from earning a steady paycheck and getting benefits from my employer to sorting out how to make my own income from freelance jobs and my side hustle. My finances went from being stable to being a complete mess.
I had so many things to focus on, since my bills were piling up and I needed to work really hard to bring in my income, and I found that I was making money mistake after money mistake. Within a year of working for myself, I realized that I’d wasted thousands of dollars doing things, or not doing things, that quick fixes would have prevented.
Here are the five money tips I wish I’d known when I became self-employed that would have made things easier on my finances.
1. Set up an emergency fund
After becoming self-employed, my relationship with credit cards changed. I started charging a lot of must-have items and accumulating debt fast. I didn’t have the cash for health bills (since my health insurance changed after becoming self-employed) or a few months of rent, so I put a lot more than usual on my credit card and paid it off slowly, along with the interest.
It prompted me to get serious about setting up an emergency fund (something I didn’t have before) so I could turn to that money if I needed to pay for bigger things or expenses during a time when my income dipped.
I started putting away between $250 and $750 a month, based on other expenses, into that emergency fund so that overtime it would grow and hopefully save me from having to accumulate debt or pay interest on things I put on my credit card.
2. Put money aside for taxes
When I became self-employed, I had no idea how complicated my taxes would be since they were no longer automatically taken out of my paycheck like they were when I worked full-time for an employer.
Nobody told me, during that first year, to set aside some of my income to help make those tax payments eventually. Because I didn’t account for this on a monthly basis, I was hit with a giant tax bill that I could not pay upfront.
After learning this lesson, I’ve put aside estimated taxes every month since so that I won’t be hit with any curveball tax bills in the future.
The best way to do this is to set up two separate business savings accounts, one for money received from clients or business services and the other to hold a percent of your earnings to act as an estimated quarterly tax account.
3. Stick to a budget and manage your cash flow
I had so many random expenses when I became self-employed, from work supplies (like a new computer and desk) to other consultants and professionals I needed to hire. I didn’t have a budget and wasn’t great about tracking expenses. I often paid for these items out of my personal account and not my business account (which didn’t have the cash flow to afford many of these things). I spent around $2,000 from my personal account during the first year of being self-employed
It taught me the importance of having a budget and managing my expenses so that I could pay for things from my business account and not have to pull from personal funds that I never paid myself back for from my business account. After a year of making this mistake, I told myself I would stop giving personal loans of cash to the business and instead, budget and track expenses to make sure the business could afford those things.
4. Hire an accountant and bookkeeper
In an effort to save money, I didn’t hire or work with an accountant or bookkeeper during my first year of being self-employed. Because I didn’t work with a professional, I made more money-costing mistakes.
When I started working with an accountant and bookkeeper the next year, I was able to get a system and structure in place for my business finances for making estimated tax payments. It saved me a ton of time and money in the end. It was an investment into a service that was extremely worthwhile and helped me have a clear long-term picture of my business financial goals.
5. Pay yourself a salary
During my first year of self-employment, I wasn’t sure if I should pay myself a salary or just take money from my business accounts, of varying amounts, to pay myself every month.
Without having a set salary, I wasn’t able to control the flow of my business’ finances. While it can feel complicated to figure out how much to collect as your salary, since money coming into your business can fluctuate every month for someone self-employed, it allows you to make sure you are properly managing your finances and creating consistency.
Even though you might feel the temptation to pay yourself more money during months with a surplus of cash flow into your business, this can mess up your books (if you don’t properly account for expenses) and leave you overdrafting your account. I made this mistake quite often during the first year and was hit with a lot of overdraft fees I could have avoided by having a consistent and set salary.
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