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5 Smart Money Tips for the Self-Employed

Make your money work for you with these practical tips

Newsweek Amplify Smart Money Tips Self-Employed

Freedom—this is perhaps one of the primary reasons there is a growing number of people that prefer to be self-employed. Entrepreneurs enjoy that special prerogative to march to the beat of their own drum, call the shots, and of course, generate income while pursuing their passion.

While this kind of freedom can be exhilarating, self-employed individuals also have their own set of challenges to contend with, one of which is their finances. Unlike employees that can rely on their respective employers for a steady paycheck and related benefits, self-employees are obliged to keep an almost vigilant eye on their finances, if only to ensure that they keep their heads above water.

With liberation comes responsibilities, a ton of them. So how can you, as a self-employed individual, make sure you earn your keep, not just for today but for days to come? Here are some ideas.

Make a Budget—and Stick to It

One of the most important steps that you, as a self-employed person, need to do is to create a detailed list of your personal and professional expenses, and create separate budgets for these two areas. This will help you get a clear picture of where exactly your money goes and how much you spend per item versus how much you bring in.

According to the popular 50/30/20 rule devised by Senator Elizabeth Warren, which she shared in her book "All Your Worth: The Ultimate Lifetime Money Plan, you can use 50% of your monthly income for your essential expenses, such as rent, utilities, and manpower. How you divide this 50% between your personal and professional expenses will depend on your current needs and spending habits - what is important is that you keep your spending within range so that the rest of your monthly income can be allocated for any incidental purchases you may need to make, as well as your savings and emergency funds.

However, if there is one thing a freelancer knows, it is that monthly incomes will always vary. As in life, there are good months, and not so good ones as well. As such, it would be best to compute for your average monthly earnings, and use this as your guide in making your budget for the month. Since your essential expenses are normally a given already, you can save up on other expenditures such as communications, entertainment, and other miscellaneous items.

It is highly recommended that you keep a visible record of your budget so that you can be guided accordingly. This can be as simple as jotting it down on a dedicated notebook or perhaps maintaining a spreadsheet that you can update as needed. Self-employed individuals can also make use of free mobile budgeting applications that can help monitor their spending, and keep within their indicated budgets.

SEE: Say Goodbye to Mindless Spending

Clear Yourself of Debt

Newsweek Amplify Smart Money Tips Self-Employed

Yes, times are difficult, now more than ever. Unfortunately, this is not an excuse to be remiss on your debt obligations. Just think of the steep interest rates that you could be incurring by failing to make your debt repayments, not to mention the potentially massive hit that your credit score will inevitably be taking.

You know how they say, "Out of sight, out of mind?" Just like your budget, it would be good to make a list of all your existing debts, together with the monthly payments that you need to make and their corresponding due dates so that you can be guided accordingly. It is very easy to incur late fees and surcharges, simply because you forgot about your payment due date. Bear in mind that your interest rates and finance charges can go up dramatically if you miss making two payments in a row.

In the unfortunate event that you forget to make a debt repayment, make sure you do so as soon as possible, instead of waiting for the next billing cycle. Not only do you spare yourself from astronomical surcharges, but you also avoid being reported to the relevant credit bureaus.

SEE: This Robo-Advisor Can Help You Pay off Credit Card Debt Faster

Settle Your Taxes

Unlike corporate employees that can simply rely on their HR team to sort out their income taxes for them, self-employed individuals have to figure out how much they need to fork over to the IRS on their own. And while this can be daunting, especially for those that are new to the world of self-employment, knowing the basics can help in figuring out the dynamics sooner.

For starters, self-employees that receive a net income of at least $400 from their job are required to pay self-employment taxes equivalent to 15.3% of your net earnings for the year. While self-employment taxes can be paid either on a quarterly or annual basis, choosing the former can be easier on the pocket, and reduces the risk of penalties for possible underpayment.

In addition to the self-employment tax, you will also need to pay income taxes on your total net profits for the year. Rates for this type of tax vary—aside from your total earnings for the year, income taxes also depend on the size and composition of the business, as well as the civil status of the proprietors.

Thankfully, self-employees also have the opportunity to file for tax deductions on items, tools, or real estate that you use specifically for your work or business. This is where your expenses list will come in handy. You can file for deductions for your home office, business-related meals and travels, vehicle use, and internet and communications expenses, among others.

Don't Forget Your Insurance

Newsweek Amplify Smart Money Tips Self-Employed

It is very easy to think of insurance, may it be health or life insurance, as an unnecessary expense. As a self-employee, you may find a better use for your $44, the average monthly term life insurance premium, like food and groceries. That is, until the unexpected happens. And by then, securing an insurance policy would already have been too late.

Think of an insurance policy as you would the airbags in your car—you're hoping that you will never need for it but are comforted by the fact that it is there. A life insurance policy provides a financial safety net so that if the worst happens, your beneficiaries receive a benefit that can help them pay for utilities, mortgage, education, or other expenses.

Unlike before when securing insurance policies was considered as something that was more of an option rather than an essential purchase, securing one early on in life, when premiums are still typically lower, is now viewed as a sound decision.

A term life insurance policy, such as the one being offered by a company called Bestow, can be a good option - not only can it more budget-friendly compared to whole life insurance policies, self-employed individuals are also given the liberty to choose how long s/he will need coverage for, which could be between 10 to 20 years.

Think about it—for as low as $16 a month, you can already enjoy insurance protection at the cost of only two grande-sized Caramel Macchiatos! Applying for term life insurance today can help assure that you, your savings, and more importantly, your loved ones, are prepared and protected from any further untoward occurrences.

During this period of uncertainty, being self-employed may be more challenging than usual. Nonetheless, by observing the above-mentioned tips, you may just be able to weather the storm, and emerge as a stronger, savvier, and smarter self-employee.

Ready to protect your interests as an empowered self-employee? Head over to Bestow to get a quick term life insurance quote today.

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