Are you saving enough money?
Much has been made of the fact that nearly 70% of Americans have less than $1,000 stashed in their bank accounts. The same principle applies to entrepreneurs running their businesses. The self-employed commonly find themselves on edge financially.
Follow these tips for saving money while you’re self-employed. Most of these tips can be applied to your personal and business finances.
- Create a Budget
The first step to saving money while self-employed is to know where you stand in the first place. Everyone should have both a household and business budget.
A budget is simple enough to create. You list your monthly outgoings to get a benchmark for how much you need to survive every month. Add your monthly income to determine whether you’re in the red or the black.
Your budget shows you whether you are earning enough or spending too much. It demonstrates whether you need to make spending cuts and where you need to make them.
Refer back and update your budget at least once per month.
- Shop Around for Your Insurance Policies
You’re likely paying hundreds of dollars every month for your insurance. Everything from liability policies to health insurance will come with monthly premiums you have to pay. The self-employed also need to think about their business insurance policies, such as malpractice and self-employed insurance.
Everyone needs sufficient insurance coverage to protect themselves and their assets if something goes wrong.
There’s little benefit to being loyal to one insurance company over another in most cases. Get into the habit of shopping around and comparing annually. Many insurers will even price match if you find the same policy at a lower price with one of their competitors.
- Build an Emergency Fund
Anything can happen at home or in business. Ideally, you shouldn’t have to dig into your retirement or investment fund if something goes wrong. A downturn in business or an unexpected medical expense could cause serious problems.
Your initial focus should be to build up an emergency fund for your household and your business. Most experts recommend maintaining a minimum of six months in expenses to keep everything running if you lose the bulk of your come. If you’re ambitious, you should aim for twelve months. If this seems unrealistic, it might be worth looking at side hustles you can do to help you build that post. Look at your skills and how you can apply, search online for money-making opportunities such as looking to sell feet pictures or other photography, or take up a delivery job, for example. This will help you boost your emergency fund or give you extra cash to live on.
- Use Technology to Cut Costs
Technology has allowed us all to automate much of our daily lives. Why pay for a coworking space when you can simply use video conferencing software to collaborate instead?
Why pay for an office space filled with filing cabinets and watercoolers when you can function just as well in a home office, which you can also take a tax deduction on?
There are so many ways in which technology can cut your costs in every aspect of life. With so much competition among tech providers, you might be surprised at how much money you can save by further digitizing your life.
- Track Every Transaction
How many times have you let a premium newsletter subscription keep running when you don’t make use of it? Cutting those big expenses is easy because they take a big chunk out of your budget every month.
Yet smaller expenses open you up to being constantly nickel-and-dimed. If you’ve got subscriptions to three different streaming services, think about which one you really need and cut the rest.
Track every transaction at home and in business. Review whether that expense was really necessary and cut what you don’t need.
- Take All Your Tax Credits and Deductions
Tax credits and deductions are there to support hard-working Americans in business and at home. These tax credits can add up to thousands of dollars in tax savings every year. It has meant that 57% of Americans paid no federal income tax in 2021.
Unfortunately, millions of Americans are also paying more than they should in taxes because they’re failing to claim the credits and deductions they’re eligible for on their taxes.
Hire a tax accountant to manage your tax affairs rather than attempting to file yourself. Not only will they be able to figure out what you can claim, but they will also ensure you remain tax compliant at all times.
On a side note, you may also want to consider filing quarterly taxes to reduce the one-time burden come tax filing season.
- Plan for Retirement
Like when you create a budget, you should also be planning for retirement. Don’t make the mistake of assuming that because you’re young, this is a problem for later. Approximately one in four Americans have saved nothing for their retirement.
Your nest egg includes everything from money in a savings account to a Roth IRA or SEP. Make sure you consult an investment advisor to support you in planning your retirement.
But how much should you have saved for your retirement?
Firstly, Social Security will only replace roughly 40% of your pre-retirement income, so you have a lot more to cover.
Aim for the following guidelines when saving for retirement. Here’s what you should have saved:
- Age 30 – Your current annual salary
- Age 40 – Three times your current salary
- Age 50 – Six times your current salary
- Age 60 – Eight times your current salary
- Age 67 – Ten times your current salary
Obviously, the more you can save, the better. Remember, the sooner you start saving, the less lost ground you’ll have to make up. If you leave it until later, your monthly contributions will need to be much higher to make up for lost time.
Saving is a matter of slashing your expenses and committing to saving more of your income. Shopping around, streamlining your operations, and being smart with your taxes will all contribute toward putting more money in the bank.
Go out of your way to keep accurate documentation and hire a professional to handle everything. By being attentive to your finances, you’ll be able to confront any financial scenario.
What are you doing to save more this year?