For many, starting on the path to self-employment is a dream come true. However, if you’ve worked as an employee your entire life, you might suddenly find it difficult to manage your finances. The following tips can help you track your money and handle your income so you’re ready for everything from daily living expenses to buying a new car.
Pay Yourself a Salary
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When you’re first starting out as self-employed, you need to decide how much money you can comfortably live on each month. This amount will be your salary, and it’s important to pay yourself this salary every month to help keep your finances under control. Even if your business has a month that’s better than usual, you should resist the urge to pay yourself more. Instead, save that extra money in case your business has a lean month down the line. Then you’re still able to pay yourself the same amount.
Have Separate Bank Accounts
You need to have separate bank accounts for your personal and business finances because keeping these different finances apart is crucial. First, having separate accounts makes it easier to track deductions and expenses for your business. Plus, having a separate business account can clearly show if you’re spending more money than you’re making. Finally, if you’re ever audited, separate bank accounts can clearly show your income and expenses.
Put Aside Money for Taxes
Perhaps one of the biggest mistakes self-employed people make is failing to set aside money for taxes. When you’re employed at a regular job, taxes are automatically withheld from your paycheck. However, when you’re self-employed, you need to make sure you’re saving enough from each paycheck to cover your taxes. Depending on your location, overall income, and filing status, you might need to pay anywhere from 25 to 30 percent of your income. A tax professional can help you decide how much you should set aside for taxes.
Choose a Point of Sale That Automates the Financial Process
If your business sells a product, having a point of sale system to keep track of inventory is very important. A point of sale system that can sync with an accounting software program like QuickBooks can make your life even easier. With this type of system, sales from the day can sync with QuickBooks to reduce the chance of double entries or other errors. Additionally, when it’s time to take care of your taxes, the system has kept your books updated all year, so you have all the information you need to file.
Track Your Expenses
Making sure you track your expenses and have detailed documentation of these expenses for tax purposes is critical. Fortunately, you have a variety of apps that can help. For example, Expensify can scan receipts and credit card statements to pull expense data, and MileIQ can automatically track business mileage. However, if you’re serious about tracking your finances, consider something like quickbooks service Greenfield – professionals usually have a wealth of subject matter expertise that you don’t.
Managing finances is an important part of being self-employed. These five tips can help you make sure you properly track income and expenses so you have one less thing to worry about.