Perhaps you have recently considered quitting your full-time job to take on a new challenge in your career. From freelancing to even turning your side hustle into a full-time job, there are a variety of reasons why so many people have recently decided to leave the workforce for good.
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Although freelancing offers better flexibility in your schedule, the ability to be your boss, and the relaxation of working from home, it’s no wonder more than four million people have quit their jobs. in January 2020.
Times have changed since the pandemic hit, and the extended shutdowns have shown people that starting their own business can be financially rewarding if done right, and not having to answer to someone else can help improve innovation and productivity.
Yes, being self-employed has its perks, and it’s become undeniable that working from home, and being your own boss, is much more appealing than being stuck in an office or having to work for a company that doesn’t have the same moral position you.
Starting a business, whether in your hometown, or perhaps elsewhere, also comes with financial strain, even if it seems like the grass is greener on the other side. There are many things to consider first before making drastic changes.
So whether you’re currently quitting your job or have already quit your job, it’s time to start talking about the financial mistakes you might face as a freelancer.
From budgeting, time management, work-life balance, and proper savings, freelancers and freelancers make a number of mistakes, and this article will help. to avoid these errors.
Not budgeting properly
Right from the start, it’s time to get your finances in order. Now that you’ve left a stable job and a full-time salary, you need to start budgeting better. Count every penny you spend and cut unnecessary expenses.
There’s a simple equation that works, and you can apply it either when you’re self-employed or when you’re still getting a monthly paycheck.
Divide your income as follows:
- 50% of needs: This will be major bills such as utilities, mortgage, rent and groceries.
- 30% Wants: This can be for things you want at a certain time, like luxuries, or eating out once in a while, but aren’t really a necessity.
- 20% savings: it is advisable to put at least 20% of your income in savings, an emergency fund or perhaps return this money to the company.
If you are running a small business from home or online, you will need to reduce your requirements as this will help you save a lot more and you can use any excess cash to support the business.
Inappropriate use of time
Maybe one of the reasons you decided to work for yourself or start your own business is because it gives you the opportunity to spend more time with your family and do what you love. While that may be the case, many entrepreneurs, freelancers, and freelancers still don’t understand the value of time.
Now that you have more time to do lots of different things, it should be natural to prioritize certain tasks and projects. Consider a high priority job and eliminate it first.
Have a journal or table calendar where you can write down important tasks that need your attention. Focus on the important things first, before pursuing other projects.
Yes, having a balance as a freelancer or freelancer isn’t easy, working from home and maybe still having a family, but consider how every minute or hour you spend doing something unimportant you could use this time to learn a new skill, expand your network, seek out new clients, or finalize a certain project.
Time is money, and that’s a permanent fact that you need to grasp from the start.
Unable to separate business and personal expenses
So maybe you have an idea of how to budget now, but you still can’t see money coming in and being reinvested in your business or entrepreneurial ventures.
The separation of personal and business expenses is one of the main reasons many small businesses or freelancers can struggle to make money.
Although your new freelance job is just starting to take off, you need to consider the money that comes in and how it’s divided.
For personal expenses, use your checking account, as money comes into the business, pay yourself a small salary, if possible. This account and money can now be used for personal purchases.
All business-related purchases should be entered into a worksheet for tax-related purchases and to ensure that you are not overspending on the business side.
As the business grows or you start getting more jobs, you may start to consider creating a business account. Remember that once you open a business bank account there may be tax related expenses you will need to meet, so make sure your business has an income level before you open a business bank account.
Not tracking expenses and income
This goes hand in hand with separating personal and business expenses, and you need to consider what you spend, versus how much you earn.
Some business owners have a tendency to overspend, buying new inventory or merchandise when not needed, or perhaps even when there isn’t even cash to make a major purchase that isn’t needed. is not necessary at this time.
Tracking how much you spend versus how much you earn is critical to the success of your business or freelance career. If you’re a freelancer who works from home, buying expensive office equipment that you may not need right now can squeeze your budget.
The same goes for an entrepreneur who makes large purchases when there is not enough cash to support them.
Make sure expenses don’t exceed your income or income, if you’re starting to see red in your books and in the budget, it’s time to start paying more attention to your budget.
Savings. Savings. Savings.
So maybe you already had a healthy-looking savings account before you quit your job. By now, you’ve started using some of that savings to get your business started, making necessary payments until the real money starts rolling in, or paying off unpaid credit card debt.
Whatever you have spent with your savings, it is important that you now seek to put back what you took out. It may not be possible immediately, but over time, when you start to generate substantial income, you can put some of your income or income into your savings.
Your savings are your lifeline when you reach a point where sales are lower than you expected, or maybe you haven’t received as many contracts as you hoped.
Keep track of how much money you put aside as an emergency fund, because you are now in complete control of your money, your expenses and the income you earn, you need to consider how serious your savings are.
First and foremost, be sure to set aside at least 20-30% of your income in a savings account. You can also be smart about it and put it in an account that receives a decent percentage of interest each month, or in a mutual fund.
Be sure to do proper research before you start looking for different ways to grow your savings, as you may also run the risk of losing them.
No effective tax planning
Taxes are different for self-employed or self-employed, and the sooner you get there, the better.
For the self-employed, you will generally report your income and withhold your own taxes. You may also have to pay self-employment tax, and if you are running a small business, there may also be business-related taxes that must be reported as well.
Freelancers should also learn the rules of what to file, withhold, and report, especially if you’re working from home.
It’s a good idea to plan your taxes at the start of your new career, as it will help you see how much money you need to set aside for taxes.
There are also different categories for business tax and self-employed tax, which can range from business expenses and purchases to personal expenses that can be classified as a business purchase. It’s a tricky and complicated system that, if not properly understood, can cost you a lot of effort and money.
One last thought
Now that you’re self-employed and your own boss, it’s time you started taking better care of your finances. Not having that big paycheck every month and having to earn your own money comes with a lot of responsibility.
The better you understand how to work with money and how to budget and save for emergencies, the more comfortable you will be with business and personal finances.
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