Three out of every ten workers in the US are now “free agents” and although many of these individuals are brilliant in their work, unfortunately they often don’t have a good grasp on the essentials of business. Although they are the zealous group on the whole, the kind of people who prefer to make the rules rather than play by someone else’s. They have something greater than stability; maybe the integrity of their craft, or even just freedom of setting their own hours.
In other to save this bulk of zealous folks from a trial by fire we have bring together this to ensure their finances are in order.
1. don’t let it be just a budget:
When independent contractors are first starting out they often charge too little because they fail to take into account all the things their former employer used to cover, Now that you are the owner, you have to set your rate high enough and get enough work to pay for benefits you must provide yourself.
Here are thing to put to mind as you set your rate.
- Taxes: determine what kind of Independence contractor the IRS says you are early on, so you can properly ascertain what your tax obligation are. You will likely have to be pay what is called self-employment tax and you will likely want to pay the taxes on your earning every quarter. This is where your record-keeping practices are essential. Set aside at least 25% of your initial payment for taxes to makes certain you’re not blindsided by a hefty bill from Uncle Sam.
- RETIREMENT: harness the power of compounding, allowing your nest egg to snowball in a tax-deferred account and financially age with Grace. Working or you dream of retiring at age35, you need to prepare for the day are no longer bringing in income.
- LIFE INSURANCE AND DISABILITY INSURANCE (health insurance). even if you are young, it would be foolish to disregard disability insurance. As a free agent. If you don’t come in, and if some tragedy or you broke your hand, (making tying an arduous process) you need to have the insurance. Though it’s not mandatory by the law you must take it into account.
- SAVINGS: since you are not borrowing for purchase again, you have to set aside some money for the purchase and the future.
2. Create an emergency fund:
This should become your priority. Although it’s depends on your personal situation, most financial planner recommend saving enough for at least six months, in both your personal and business expenses. This will set you up for the times when work is harder to come by and will protect you from being in a situation where take you don’t feel good about just because you are desperate for work.
And for you to get this possible you have to define what make up emergency for your family, too, a vacation is not a emergency, emergency fund is your protection against life unexpected events. And you are going to have a lot of the during your life time. But the fact is that they wouldn’t really be unexpected if you program then in advance
3. pay yourself regularly:
Although contracting can be a rollercoaster ride of peaks and valleys in your income, give yourself the gift of a consistent paycheck. This will reduce your stress and make monthly budgeting much easier. In order to provide the consistency, take your average income over the last year and divide by twelve, giving you a monthly amount. If you’re just starting to freelance, measure your expenses over the last year instead and divide by twelve. Once you factor in the costs in. This will help you determine what you need to make.
This is how you pay yourself has a freelancer.
- YOUR BUSINESS ENTITY: is where it all begins in fact, it’s the foundation for the entire payroll process. And will help point you to the payment style right for you.
- HOW MUCH TO PAY YOURSELF: spend some quality time with your profit&loss(p&l) statement to see how much net profit you are making in each month. Then deduct your own pay from that account-not total revenue.
- PICK A PAYROLL SCHEDULE: if your business has at least one employee (including yourself), you need to think about how often you want to pay yourself. In the U.S, the most popular payroll schedules are twice a month, every two weeks. Most States require that you follow a certain calendar, so find where your States falls on this chart from the department of labour.
Avoid the temptation to pour everything back into the businesses; you deserve a paycheck for your peace of mind and an accurate account of how your business is really doing. Continue to pay yourself as if you were an employee
4. Get professional advice.
Just because you are an independent contractor doesn’t mean you have to face everything alone, get a coach. Find a mentor, hire a C.P.A benefit form the power of a community through a freelancers union. And the world feels a little less could when you have support and never know what you may learn or who you may meet through the community you cultivate.
5. Open a separate business account:
Life is messy enough; you do not want to have to sort through business and Personal expenses at every turn. Use a separate business account for the aforementioned business emergency fund, your salary, taxes, your retirement fund and business expenditure.