How to Budget If You Are Self Employed – 7 Top Tips!
Are you self-employed and looking for helpful tips on how to budget? If so, you have come to the right place! In this blog post, we will share seven of our top tips on how to budget effectively if you are self-employed. Keep reading for insights that can help you stay on track financially and maintain a healthy cash flow. Thanks for reading!
7 Top Budgeting Tips for Self-Employed
1. Implement effective bookkeeping & accounting practices
All business owners, regardless of the size of the business, need to conduct proper bookkeeping and accounting. With bookkeeping, you record all of your financial transactions, enabling you to monitor your business’s profitability and growth. This process lets you generate a clear map of where you’re putting your money and eliminates guesswork when it comes to your spending and savings.
To effectively record and track your finances, you need to implement a system for organising your invoices, checks, bills, receipts, purchase orders, and other financial documents. This can be overwhelming, particularly if you’re self-employed. But you should have a system in place for monitoring your finances, as this can make your life easier in the long run.
2. Calculate your spending
Create and follow a budget by taking into account how much you’ll be spending every month. Having an estimate of your monthly expenses will help you create a more accurate budget. Make a comprehensive list of all your expenses, and double-check them to make sure that you’re not missing anything. Some of your expenses can include operational costs, taxes and mandatory contributions, transportation fees, rent or mortgage, food, utilities, and more.
Using online tools and platforms can help you better manage and track your expenses for the month. You can even categorise your expenses every week to give you a closer look at them.
3. List your expenses according to priority
After calculating and listing all your expenses for the month ahead, the next step is to categorise them by priority. Prioritising what’s important lets you cover all your necessary bills and meet your basic needs. This can simplify how you create your budget and even help eliminate stress when it comes to handling your finances.
Your list starts with your high-priority bills, such as rent or mortgage. Next are your other essential bills, examples of which are food and utilities. Sort through your list until you get all the essential bills out of the way. Ideally, savings and investments are high-priority as well. After you’ve narrowed down your list, you can then start creating a budget for your non-essentials or things you’ll spend on as a way of treating yourself.
4. Separate your personal and business finances
It’s crucial to separate your finances from your business finances. This allows you to get a clear overview of your business finances and makes things easier for you when it’s time to file and pay your taxes. For more convenient monitoring of your business finances, consider creating a checking account where you can take out cash solely for your operational expenses.
Contrastingly, mixing your business and personal finances can make it more challenging for you to tell business expenses from personal ones. If you’re newly self-employed, this process can involve studying bank statements for days on end. This means exerting more effort and energy just to get your finances in order.
5. Allocate for taxes
As a self-employed individual, it’s your responsibility to pay your taxes diligently. Setting aside money for your taxes will help you pay the right fees on time.
Her Majesty’s Revenue and Customs (HMRC) has the self-employed ready reckoner tool for self-employed individuals. This tool can help you get an estimate of how much income tax you’ll have to pay for a given period. For your convenience, you can also consult certified accountants to help you file your tax returns.
6. Plan ahead
Ample planning of your budget lets you anticipate some of the expenses that you’ll be encountering in the future. Let’s say the coming month is when you’ll be celebrating your birthday. Planning means allocating a portion of your budget for the expenses you’ll make in case of unexpected or special events (in this example, your birthday). Planning helps ensure that you don’t overspend more than what you’ve allocated for your budget.
Planning can also include saving up for future goals. If you have excess income, how would you spend that money? Would you put it in a savings account? What would you save it for—to get a new vehicle, to pay off loans, to buy a new appliance? Creating a plan for extra income lessens the risk of impulse buying and helps you stay on track with hitting your savings goals.
7. Revisit your budget over time
It pays to look over your budget after a few months or so. This is so you can see if any changes should be made to your current budgeting plan. Revisiting your budget enables you to identify whether there are modifications you can apply that would be more appropriate for your current situation.
Let’s say you’ve experienced a steady increase in your income over the last few months. This would allow you to increase spending in some areas of your budget. You can allocate more towards your savings, or you can even increase your budget for leisure such as travel or recreation.
Self-Employed Budget 2022
Looking for ways on how you can better track your finances using a self-employed budget template? Here are some simple steps you can follow:
- Identify how much income you earn every month.
- Organise your financial documents. From these documents, monitor each of your expenses.
- Classify your expenses; determine whether they’re mandatory or variable.
- Compare your monthly income with your monthly expenses. Of course, a favourable outcome is if the former is higher than the latter.
You can create your budget template using free apps such as Excel or Google Sheet. For more convenience, you can also download budget templates for self-employed individuals online.
If you’re a self-employed individual, know that keeping track of personal and business finances is necessary to monitor and measure business growth. At Nigel B Butler Limited, we’re committed to helping you grow your business. To learn more about our bookkeeping & accounting services, as well as other business growth services, contact us now.