How to Learn Self Employed Money Management

Self employment offers freedom, flexibility, and opportunity - but it's not as easy as simply showing up at work and picking up your paycheck. The self employed need to think like CEOs, and that means learning money management principles such as sticking to a self employment budget, getting self employment health insurance for your and your family, and managing self employment taxes. After a decade of self employment and learning how to stick to a budget, here are some tips for making the self employment budget work.

Difficulty: Moderately Challenging

Instructions

Things You'll Need:

• Self employment budget
• Willingness to prioritize expenses, such as self employment health insurance, and cut business costs

1. *Rule #1: Keep Overhead Low. The benefit of being self employed is flexibility - flexibility to create your own schedule, workload, and business plans. But if you're paying a large portion of your incoming funds to monthly obligations, you're locked into to choosing projects and jobs you don't love just to pay the bills. Here are just a few costs that can easily get out of control for self employed freelancers:
   
   *Office space
   *Equipment rental and space
   *Phone/Internet/fax charges
   *Self employed health insurance
   *Tax preparation
   
   When you create your business plan, consider the bare minimums you require to run your business effectively. You need self employed health insurance, but can you find a self employed health insurance plan with a higher deductible and lower premiums? Can you conduct your work in a spare bedroom or corner of your home? Can you get by with just a cell phone instead of a separate land line? Do you fax often enough to warrant a dedicated fax line, or could you manage by using .pdfs or stopping by the local copy shop when a fax is required?

2. *Rule #2: Dump Debt. When you're self employed and starting up, business debt is sometimes necessary to purchase equipment or inventory that you must use to run your business. But over time, it should be your goal to reduce your monthly obligations (except for self employed health insurance - don't skimp here) so you have the maximum amount of flexibility and freedom. If your goal is to grow your business, having too much debt may limit your ability to take risky projects or add valuable employees who can make your self employment more profitable.

3. *Rule #3: Develop Cash Reserves. Like an emergency fund for your business, cash reserves (sometimes referred to as retained earnings) stabilize your self employment. Imagine that in the first year of being self employed, you're offered a 6-month-long project, with a retainer paid up front, but a large payout plus royalties at the end of the project. Without cash reserves that you could draw to live on, you can't say yes - because you wouldn't have money to pay your self employed health insurance or live on in the interim. No cash reserves means little flexibility to take on lucrative long-term self employment projects.

4. *Rule #4: Focus on Cash Flow. As a self employed freelancer, it is critical to develop client relationships that can offer some of the stability of a steady paycheck. For clients who want work on a regular basis, you can set up retainer fees - the benefit to the client is that they get a reserved block of your time. The benefit to you is that you can count on a certain number of hours (and hence, paid invoices) every month, allowing you flexibility with other projects and giving you the ability to pay your self employed health insurance every month.

5. *Rule #5: Keep Up with Invoicing. I'll admit it - sending out that invoice is my favorite part of any project, so it's a step that never slips my mind. But for some self employed freelancers, finding the project or completing the work eclipses the final step, and they let days or weeks go by before submitting their invoices. Doing so puts an additional lag in your cash flow stream, and if there's an accounting snafu on the client's end, it may become much more difficult for you to pay your bills.

[leaper]

on 3/30/2009 Good ideas for the self employed.

[gahazeleyes]

on 3/27/2009 Very good. Passed on to my daughter.