How To Make A Budget When You’re Self-Employed

When you’re self employed, it’s easy to let your budget go by the wayside. But this is the fatal mistake that small businesses make which can lead them into dire straits. The issue for self-employed people and independent contractors is that some months are lucrative and others are paltry, leaving you in a state of flux and insecurity. If you’re self-employed, you absolutely need to set a budget that will keep you in the clear during those unprofitable seasons, otherwise it will be your personal assets paying off your business debts. A budget will not only save your business, it’ll save your life.

Prepare For A Little Work Up Front

The first step to creating a budget for your small business will be hard work… until you get the ball rolling. Prepare to set a frugal budget up front, and live without frills for the first couple of months. Once you’ve established a safety net, the profits will start rolling in.

Be Specific

When setting a budget for your business and personal expenses, it’s not enough to estimate. For the first couple of months you’ll need to take a strict record of your expenses to established a baseline you can use in the future. It’s a good idea to budget for your personal expenses in the same way. Once you know how much you need and want for life expenses, you can set aside this figure in your business earnings.

Create A Buffer

A buffer is an amount of money that you set aside for those months that you don’t earn enough to live off. Build this buffer up by setting aside a substantial amount over the first couple of months, and then reducing the amount once you’ve built up your buffer. Depending on what industry you’re working in and how unstable your income is, your buffer may be a month’s worth of personal income or more.

Stick To The Regime

Establish a monthly ritual for dividing up your income from your business. Start by taking out the 30% needed for tax, then take out 5 or 10% to stand in as your super or retirement fund. Finally, separate the  amount required for your buffer fund, and then your personal income. Establish this regime and stick to it. You’ll also want separate accounts for each of these categories: business expenses, personal income, tax and savings/retirement.

Pay Yourself

The amount of money you extract from your income should be the same every month. Resist the urge to give yourself a pay rise every month – the reality is you probably won’t be able to sustain it just yet. Paying yourself a set income will give you that stability you need.

Clearly Delineate Home & Home Office

If you’ve got a business office in your house, it can be hard to keep track of how much of your rent and power bills are a business expense. This is why as a self-employed person or small business owner, it’s important to delineate your home office space from the outset. Take the time to measure the space and workout what percentage of your rent it amounts to, and how much energy you spend while on the clock. Do the same with your car expenses by using a mileage tracking tool on your phone.