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8 Tips to Rocking Your Finances While Self-Employed

Being a self-employed entrepreneur can be a challenge financially, especially when starting out. One of the most valuable skills an entrepreneur can have is learning how to rock their business finances and ALWAYS be in the black. Sounds nice, right? It’s no fun feeling as if you have no control. What’s the point of having the freedom of self-employment if you don’t get to enjoy it?! The point of being the boss is to have freedom and control in all areas of life. In the American entrepreneurial spirit, here are a few tips to take control and stay in the black for good:

1) Have Emergency Cash

It’s best to over plan when it comes to having your emergency fund, especially in business. You need to look at every expense – both personal and business to be prepared for an unexpected rainy day. While it may be customary to have three to six months of bills stashed away, a year provides a better cushion for a self-employed person. If you’re in a high-ticket business where one client can make or break your year (Realtors, I’m looking at you), I especially recommend you take this one to heart.

2) Find a Place to Put Your Money

Savings accounts are good for that emergency cash, but after that you want to put your money where it can grow and not be disturbed. Considering other vehicles like a Traditional or Roth IRA, 401(k) solo plan, or SEP IRA account can help save money and give you tax benefits, while building your nest egg. These accounts offer multiple advantages to get you on the right side of the coin with your investing and retirement planning, and some can offer attractive personal and/or business deductions.

3) Have Different Budgets

Just like you should separate business and personal finances, it’s best to have two separate budgets – one for your personal finances and one for the business. You’ll have a clear picture of what’s coming in, what’s going out, and where you need to tweak. I look at my business expenses completely different than my personal expenses. It’s a mindset thing. I can easily justify spending $1,000 on something to help sustain my business or improve the client experience, and at the same time I’d feel super guilty taking an extra $1,000 for myself just because!

4) Keep Finances Separate

In addition to budgets, you should absolutely keep your business and personal expenses completely separate. This will make bookkeeping easier, and cut down on the headaches. Have a totally separate checking and credit card account for your business, in addition to saving for tax payments and paying business expenses. All of this should occur before you pay yourself. Also, realize that personal and business-related retirement plans are two completely different beasts. 

5) Reminders & Receipts

This is extremely important and if you do this well, you will become one of your accountant’s favorite clients. You want to organize all your receipts and digitize them as much as possible. This assists in keeping yourself accountable, and you will have backup if the IRS comes calling. Set reminders on the days you need to do bookkeeping, send invoices, and pay bills. This creates a schedule that helps you stay on track and prevents you from feeling overwhelmed. Keep things nice and orderly, and you’ll breathe easier with fewer mistakes.

6) Get a Good Accountant in Your Corner as Early as Possible

This is often the bane of new entrepreneurs, and if you take nothing else away from this read, remember this one. It’s important to save for your taxes and pay them first, before you save money. You don’t want to be in a situation where you haven’t paid taxes and get yourself in hot water. A good accountant can keep you on track from the get-go. Estimated taxes are required. If you don’t pay them, you will have extra interest and penalties, costing you more money. They can also make sure you are getting the correct bang for your buck when you make deductible contributions towards your retirement planning and investing.

7) Create Financial Goals

This may seem like a no-brainer, but it’s not. Is there something you want or need for your business or personally? Make a goal and work towards it! Once you have a budget in place, you will be able to determine how much you can put away to reach that financial goal. Being able to see your goals and how close you are to reaching them gives you motivation. This includes retirement planning and investing. Make it non-negotiable budget item, and your retirement contributions will be just like any other bill. When something’s a bill, it tends to get paid.

8) Use Percentages

This works really well for some people, especially those who are more visual. When creating your savings goals, use percentages instead of actual dollars. When you have percentages, you may have more money to put away, especially if you have a bonus or extra money one month. Using percentages also helps provide perspective when planning for the future. It provides a different point of view you don’t get when estimating based on a dollar amount. It can also make it easier to say no to things that may not be necessary for the business. Percentages can also bring your business finances to life if you have software and tools that will generate a pie-chart for you! The accountant can help with this part. This also provides a great opportunity to set a percentage into the budget for retirement planning as a non-negotiable budget item.


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About the author: Kyle A. Davis is a Chartered Financial Consultant® and  president of Integrity Financial Group in Orlando, FL. He is a Florida  native and an advocate for financial literacy and practical money  education. When not assisting clients in planning for retirement, he  creates educational videos on financial wellness on his YouTube Channel -  https://www.youtube.com/user/financialplannerinfl