Perhaps you've recently considered giving up your full-time work in order to pursue a new career challenge. There are a variety of reasons why so many people have recently decided to leave the profession permanently, ranging from freelancing to converting your side hustle into a full-time job.
While self-employment provides more schedule flexibility, the option to be your own boss, and the convenience of working from home, it's no surprise that over four million people resigned from their jobs in January 2020.
Since the outbreak of the epidemic, times have changed, and prolonged lockdowns have demonstrated that starting your own business can be financially rewarding if done correctly, and not having to answer to anybody else can assist enhance innovation and productivity.
Yes, being self-employed has its advantages, and it's undeniable that working from home and being your own boss is far more appealing than being trapped in an office or working for a corporation that doesn't share your moral values.
Even though the grass appears to be greener on the other side, starting a business, whether in your hometown or elsewhere, comes with financial limits. Before making any major adjustments, there are many things to consider.
Budgeting, time management, work-life balance, and adequate saving are just a few of the mistakes that freelancers and self-employed people make, and this article will help you avoid them.
It's time to get your financial affairs in order right away. You need to start budgeting much better now that you've left a solid work with a full-time salary. Keeping track of every cent and nickel you spend and reducing wasteful spending.
There's a basic formula that works, and you can use it whether you're freelancing or still getting paid on a monthly basis.
As follows, divide your earnings:
- 50% for the Needs: These will be important bills such as utilities, mortgage, rent, and groceries.
- 30% for the Wants: This category includes items that you might want at a given time, such as luxury or eating out every now and again, but aren't absolutely necessary.
- 20% for Savings: It's recommended that you set aside at least 20% of your earnings for savings, an emergency fund, or to reinvest in your business.
If you're running a small business from home or online, you'll need to cut back on your wants in order to save more money and support the business.
Inadequate Time Management
One of the reasons you may have chosen to work for yourself or start your own business is that it allows you to spend more time with your family and pursue your passions. Even while this is true, many entrepreneurs, freelancers, and self-employed people still do not recognize the value of time.
Now that you have more time to do more things, prioritizing specific activities and projects should be second nature to you. Consider the work that is most important to you and complete it first.
Keep a diary or a tabletop calendar where you can record critical activities that need to be completed. Prioritize the most vital tasks before moving on to other projects.
Yes, finding balance as a freelancer or self-employed person is difficult, especially if you work from home and have a family, but consider how every minute or hour you spend doing something unimportant could be spent learning a new skill, expanding your network, looking for new clients, or finishing a project.
Time is money, and this is something you must understand from the beginning.
Unable to Separate Business and Personal Expenses
So, while you may now have a better understanding of how to budget, you're still not seeing any money come in and be reinvested in your business or entrepreneurial projects.
One of the main reasons many small businesses and freelancers fail to make money is the inability to separate personal and company spending.
Despite the fact that your new self-employment may be only getting started, you must evaluate the money that is coming in and how it is being distributed.
Use your checking account for personal spending, and as money comes into the firm, pay yourself a small salary if possible. That account, as well as the money in it, can now be used to make personal purchases.
Any company-related purchases should be documented in a spreadsheet for tax purposes and to avoid overspending on the business side.
You can start thinking about opening a business account as your company expands or you start obtaining more jobs. Remember that once you open a business bank account, there may be tax-related expenses and filing that you must comply with, so be sure your firm is profitable before you open one.
Not Tracking Expenses and Revenue
This goes hand in hand with segregating personal and business expenses, and you must prioritize what you're spending over what you're earning.
Some business owners have a tendency to overspend, buying new stock or items when they aren't required, or even when there isn't enough cash flow to make a significant purchase that isn't required at the time.
Keeping track of how much you spend against how much you make is critical to the success of your business or freelance employment. If you work from home as a freelancer, purchasing pricey office equipment that you may not need right now can put a dent in your budget.
The same might be said for an entrepreneur who makes substantial business purchases with insufficient cash flow.
Make sure that your spending does not exceed your revenue or income; if you start seeing red in your books and budget, it's time to start paying more attention to it.
Savings, savings, and more savings.
So, before you quit your work, you might have had a healthy-looking savings account. You've either used some of your funds to get your business off the ground, making necessary payments until actual money starts pouring in, or you've paid off some outstanding credit card debt by now.
Whatever you used your savings for, it's critical that you now attempt to recoup your losses. It may not be possible right away, but as you begin to earn a significant amount of money, you can put a portion of your earnings into savings.
When sales are fewer than expected, or you haven't received as many contracts as you'd planned for, your savings are your support system.
Keep track of how much money you're saving for an emergency fund; now that you have complete control over your money, expenses, and income, you must assess the seriousness of your savings.
Make sure you put aside at least 20% to 30% of your salary in a savings account before you do anything else. You can also be clever about it and put it in a savings account or a mutual fund that pays a respectable rate of interest every month.
Before you start looking at other strategies to expand your savings, make sure you do your homework first. You could lose your money if you don't.
One Last Thought
It's time to start taking better care of your finances now that you're self-employed and your own boss. Not receiving a monthly paycheck and having to earn your own money carries a great deal of responsibility.
The more you know about money and how to budget and save for an emergency, the more at ease you will be with your business and personal affairs.
Check back here to learn more about freelance work and how to protect yourself against fraud.