Creating a budget
Written by Tom Sheridan on 1 September 2016
Creating a budget is different when you are self-employed. If you are employed, you would normally receive weekly or monthly pay at a fixed amount and you would only have to budget for your own personal expenses. As your own boss you now have to consider various forms of income of differing amounts, putting money aside for taxes, saving enough money for business costs and being able to pay yourself enough of an income to cover all your household bills. These simple money saving tips will show you how to keep on top of your finances.
- Compile an income and expenditure. It’s easy to think that every penny you earn should go straight in your pocket but when you run your own business it’s not that simple. Your income also needs to cover tax and business expenses. In order to ensure you have enough to cover all your bills create a budget that outlines what income you have coming in and what expenses you need to pay out.
- Open a separate bank account for taxes. When you are self-employed you are responsible for your own taxes. Calculate a percentage (about 30%) and deduct it from each payment you receive. Put this money aside into a separate account for taxes so when it comes to paying your tax you make sure you’ve got enough funds available.
- Pay yourself an income. While it can be tempting to pay yourself a little extra on months where you receive more income, set yourself an income figure that you can live comfortably on. Use excess monies to build your business or put aside into a savings account.
- Start a pension fund. When you become your own boss you lose out on certain benefits. Beforehand you might have had a work pension in which you deposited a part of your salary into the fund and your employer matched it or paid an additional amount in each month. When you become self-employed, it is advisable to start or continue paying into a pension as soon as possible. Put a percentage of your income aside each month for your pension.
- Create an emergency fund. While there are many benefits of being self-employed one of the worries associated with working for yourself is fluctuations in income. It is rare that you will receive a stable salary each month, especially in the early days of setting up your business – some months will be tighter than others. This is why we recommend you put money into a savings account each month as soon as you can and create an emergency fund containing at least enough to cover your expenses for a few months. This should be used as a last resort but it’s there for when you need – this will also prevent you reaching out for credit.
- Keep all of your paperwork safe. Keep copies of your receipts and organise your invoices. This will help you keep on top of your finances and prove useful when it comes to filling in your tax returns.
- File your tax returns on time. Tax returns are never fun so it’s understandable why people put off doing them until the last moment. Make sure you don’t leave it too late however because failure to get them in time could lead to a fine.
Filed under Business Advice