There are a lot of perks to being your own boss. But there are also a lot of responsibilities landing squarely on your shoulders, especially when it comes to your finances. Given the constant-shifting world of business and finance due to the global Pandemic, more and more people working from home, companies making layoffs and even shuttering completely, we are seeing a rise in self-employed people.
Given the statistics showing how many women were forced out of the workforce altogether because of added pressure of looking after children now doing virtual school, the idea of being self-employed can offer far more flexibility in this new reality.
If you’re already self-employed check out these tips below to help with your finances:
1. Build an Emergency Fund
One of the drawbacks of being self-employed is that you, and you alone, take on the risks of the market. If your client base disappears due to unexpected economic factors (like a global pandemic, for instance), you don’t have the same safety nets as employed individuals. If you suffer a sudden illness or are involved with a fender bender in your company vehicle, you’re stuck handling the medical bills and repairs on your own.
A robust emergency fund can help you take on these expenses even if you don’t have the cash on hand. Tap into these emergency savings before you take out online installment loans or draw against a line of credit.
While these financial products may provide a substitute for savings in unexpected emergencies, they shouldn’t be your first line of defense. Although unexpected emergencies may be hard to predict, part of your role as a successful entrepreneur is planning for the worst-case scenario so that you know how to handle these bills when they do arrive.
2. Pay Yourself First
One day, there will come a time when you will want to retire. While that day may still be decades away, your choices now will help determine how easy this transition is. Since you don’t have a pension plan like some salaried workers, you’ll have to count on yourself to save up for your golden years.
Take a look at this guide to build your retirement plan, or speak to a registered financial advisor to figure out how much you should be saving each month. Take this out of your paycheck first. This way, you won’t accidentally spend this important cash elsewhere.
If you need guidance on setting up your payroll and keeping your finances in check, you can seek out the assistance of a trusted CPA, such as kshkcpa.com who serve a range of different types of businesses in Hong Kong.
3. Think about Your Taxes
Salaried employees have the luxury of thinking about taxes right before the big Tax Day in April, but you? Not so much. As a self-employed or freelance worker, you may have to submit and pay taxes throughout the year. Take a look at the guidelines to ensure you’re following the right schedule.
Whether you file an annual or quarterly return, pay attention to your taxation rate. According to the IRS, it’s 15.3 percent — 12.4 percent of which goes to your social security and 2.9 percent of which goes toward Medicare. Of course, these numbers are subject to changes, so it’s important you check for updates regularly.
Skim this amount from every invoice bill and set it aside in an accessible account that won’t penalize you for making a withdrawal. That way, you won’t be scrambling to come up with the money you owe to the tax department.
Running your own business can be stressful enough without complicating things by being unprepared. Make it a new year’s resolution for 2021 to be better prepared for anything that comes your way.
