There are plenty of good reasons to consider becoming a self-employed professional, including convenience and flexibility. And with benefits like those on offer, it’s no wonder that over 16 million Americans are self-employed! But if you’re entering the world of self-employment, one of the big risks you’ll face is an unstable cash flow – and you’ll have a stronger imperative to manage your money well. Whether you’re going into IT, you’re planning to work in the creative arts for a while or you’re looking to do something else, you’ll need to have a solid understanding of how to manage your money in order to meet your obligations.
Set aside cash
When your first paycheck as a contractorarrives, it can feel exciting – and you may well be tempted to spend it all. And while you definitely deserve to treat yourself as a reward for getting your new business off the ground, it’s also important to make sure you set aside some cash so that you’ll have enough to cover future tax payments. You’ll also need to make sure you’ve got enough to cover any unforeseen problems that arise further down the line, such as unemployment due to sickness.
Consider two bank accounts
Getting a personal bank account and a business one set up really does make sense. That way, you’ll be able to get all of your income and spending data in one place when it comes to paying tax. And if you find your cash comes in unevenly across the month, it may be worth building up enough of a cash buffer in the business account to pay yourself a regular salary out of that and into the personal one at the end of each month – which is ideal if you want to break out of the cycle of instability.
Help with contracting
Some self-employed professionals have the luxury of regular, long-term clients – something which certainly makes money management a little easier. But the number of jobs which revolve around short-term contracts is on the rise, and this is especially true in certain sectors such as IT – and as mentioned above, one of the tasks that a contractor usually has to do is set aside money to pay tax. By using the services of an umbrella company to manage your contractor pay, though, you can outsource this to the experts instead. These firms can handle all of your tax payment obligations, and you can then concentrate on performing your duties as a contractor to the best of your ability.
Working as a contractor is something that brings a whole host of benefits, including a flexible lifestyle and the ability to move on easily. And while there may be some downsides, such as having to manage your own tax affairs and cope with irregular payments, there are lots of ways in which you can ensure your financial affairs stay in order as you enjoy a fulfilling, rewarding career.