Self-employment is a career choice with countless benefits, including choosing your own hours and being your own boss. Unfortunately, those benefits come to an abrupt halt when you consider the financial aspects of this lifestyle, which sees self-employed individuals foregoing securities like a stable income, and vacation or sick pay. This makes quiet periods and unexpected injuries undeniably more worrying on the financial front. Yet, around 16.7million people in the US still manage to maintain self-employed financial security.
That’s an impressive feat and, if you’re currently living on a tight self-employment shoestring, then you’re probably wondering how they manage it. Unfortunately, nothing we’re about to tell you will miraculously ease your financial worries. But getting smart about money management could bring your blood pressure down more than you might expect. It could even secure you a future in self-employment that you might not have achieved otherwise.
Simply keep on reading to find out how you can actually manage your money when you’re self-employed and living on a shoestring.
# 1 – Always Prioritize Realistic Pricing
There’s no big boss or corporation behind you setting pricing structures that ensure payment for everyone. Instead, you have to set your own pricing, and it’s surprising how many self-employed individuals fall at this first hurdle. Especially if you’re new to the industry or are doubting the quality or value of your work, there’s a high risk that you’ll set your pricing far too low. As well as requiring you to take on more work than you can probably manage, this low valuation means that you’ll forever be playing financial catch-up. So our first point is to simply prioritize realistic pricing from day one.
But what do we mean by realistic pricing? Ultimately, you need to price your services like a business, considering everything from the time a project will take, to your expenses and general resources. You also need to make sure your pricing is broadly in keeping with your industry, as a cost plan that significantly undercuts your closest competitors is a pretty sure sign of undercharging.
To avoid that, do your research based on your industry and platform. For a creative, that might mean visiting local fairs and researching price plans for successful makers. For content creators, it might mean connecting with successful people in the industry for good pricing examples, or heading to resources like this OnlyFans podcast for creators, where topics include pricing guides and cost breakdowns. Once you know what other people are charging, you’ll be able to set a fairer price on your products and time.
# 2 – Bring Budgeting Tools Onboard
Budgeting for a business is never easy, yet it’s something that many self-employed individuals rush into without really thinking about every financial avenue. This can see you underestimating your expenses, forgetting to factor in a decent hourly rate, and generally tying your finances in knots.
One way to ensure this doesn’t happen is to make sure you have a separate account for all of your business costs and income. But, even this won’t help if you don’t also bring budgeting tools on board. Obviously, a dedicated accountant is best for well-ordered finances at all times, but if you can’t afford that outlay right now, more affordable tools like FreshBooks are a great alternative.
That’s because, through a simple-to-use interface, these accessible apps enable you to fully track your spending, prepare your taxes, and keep a running tally of your expenses each month. Even if you aren’t great with numbers, this simple breakdown will enable you to see at a glance how much profit you’re actually making. This gives you time to adjust your pricing structures if you need to, and also to ensure you’re actually paying yourself a livable wage.
# 3 – Budget Based on Bad Months
While you might want to focus on your good income months when setting a financial forecast, doing so is rarely a good idea. After all, aiming high like this means that you could easily overspend or find yourself short if orders are slow one month.
As backwards as it might seem, the secret to achieving financial security therefore actually lies in basing your budget on your worst financial month. After all, if your planned profits are those of a cold January when barely anyone is spending, then it will always be a nice surprise if you get more than a small trickle of orders. This pessimistic financial outlook also means that, even if things are bad, you know that you can afford to weather the storm until orders pick up again. All because you’ve planned for it in your budget!
# 4 – Build a Bigger Emergency Fund Than You Think
Unfortunately, even the most pessimistic self-employed person can’t save themselves from the fact that, sometimes, their profits will simply flatline. After all, when you are the face, brains, and operations of your company, your income will quickly become non-existent if you’re ill, injured, or otherwise indisposed for any reason. And, considering these things tend to happen at the most inconvenient, unexpected moments, they can spell major trouble for your career prospects.
This is why it’s so important to seek self-employment health insurance, but you also can’t rely on potentially slow payouts if disaster strikes. Instead, you need to build an emergency fund that should be a lot bigger than you’re probably thinking. In fact, in an ideal world, financial experts recommend that anyone self-employed build up a fund big enough to cover at least six months of lost profit, or more if you can manage it.
This can seem like a lot of money, and the good news is that you probably won’t ever need to use it. Still, having that much in the bank at all times ensures you’re never caught short, either by a broken bone or a month of no sales.
Self-employed finances aren’t easy to get right, but you can scale off that shoestring and into a more comfortable financial situation with these tips to hand.