Conventional money management could fall flat when you are self-employed. Here are some tips on how to stay afloat, keep track of earnings and balance expenses while managing your loans using simple budgeting methods.
Freelancers, flexi-time workers and the self-employed work varying hours, which often means fluctuating income each month. In such cases, smart budgeting tips around accurate forecasting of income and expenses can ensure a greater chance of living a stress-free and comfortable life.
While there is no universally definite formula for good money management, there are some simple tips that go a long way.
Establish a fund for rainy days
Having a rainy day fund – irrespective of whether you’re on a fixed or fluctuating income – can be a good financial safety net. Budget your spending so you can set aside some money regularly for a rainy day fund that can be used in case of emergencies, or if you just need tiding over during lull periods.
Use technology to manage business finance
Self-employed people need to stay on top of every payment, track costs, take risks and plan well to ensure that they get paid on time.
Using simple technology - such as basic accounting software - can help you save time otherwise spent on manual tasks like invoicing, bank reconciliation and managing customer contacts. Overall, good management of your business’ finance means you’re more likely to get paid on time and have a good cash flow, so you can avoid dipping into your personal savings.
Save money while paying off debt
With an irregular income, expenses and debt repayments can be daunting. If paying off debt is a priority for you, it is also important to remember to put aside some money while you’re at it to use as working capital.
By having some cash set aside to spend before your next paycheque, you reduce the need to use credit cards, which can result in additional debt due to high interest rates.
Improve your cash flow
Self-employed people often face cash crunches because of delayed customer payments, which can lead to negative cash flow.
Encourage your customers to pay you on time (or sooner) by offering incentives like discounts or other benefits to reward early payment. You can also change your payment terms to collect a portion of the fee you’re charging upfront.
Another method of improving your cash flow is to limit your inventory stock, prioritising goods that sell fast, and keeping only what is necessary. This can help keep your business more liquid.
Set aside money for tax early on
An important part of budgeting is to know what you, as a self-employed person, owe the government and what you can claim. Setting aside money for tax early on – in a separate bank account - can help you avoid penalties associated with late tax payments, and also gives you a more accurate view of your actual revenue for the year. Remember to also account for Goods and Services (GST) Tax if your business is registered for GST.
Keeping your paperwork in order
Being your own boss means that you’ll need to be responsible for keeping all your financial records up to date. And when it comes time to making big decisions with your money - such as buying a home - a lack of proper documentation could mean that you may not be able to obtain a loan easily from traditional lenders.
Although it’s best to have all your financial records in order, understandably, this isn’t always easy. This is where alternative lenders like Pepper Money can help by offering alternative methods of verifying your income.
With an emphasis on flexibility, Pepper Money offers self-employed borrowers personalised and individual assessments and the ability to consolidate an unlimited number of debts.
Budgeting for the future implies prudence – even more so when you are self-employed. With these simple tips, you too can ensure financial health for yourself and your business.
This article provides you with factual information only, and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser. Neither Pepper nor its related bodies, nor their directors, employees or agents accept any responsibility for loss or liability which may arise from accessing or reliance on any of the information contained in this article. For information about whether a Pepper loan may be suitable for you, call Pepper on 13 73 77.