In line with the changes from the pandemic, a growing number of millennials are self-employed, with 44% of them participating in freelance work. Self-employment in many industries is rising as more individuals shift to being their bosses due to the flexibility of hours and work location, a wide range of hobbies and skill sets, and a desire to make more money. More and more people are leaving their employment to discover how much money they can generate on their own.
As a salaried employee, your earnings are limited unless your firm offers performance-based bonuses. However, when you manage your show, the only limitation on your earning potential is your ambition and market demand. As a result, many professionals are chasing their financial goals and believing in themselves.
That said, specific financial issues arise when you are self-employed that are not of concern when hired by a company that pays you a salary and provides you with benefits. We’ve compiled a list of tips for people who are self-employed or planning on becoming self-employed and want to build and protect their wealth.
Build An Emergency Fund
Given the fickle nature of income, freelancers and self-employed professionals should keep an emergency fund on hand. Experts advise setting away at least six months’ worth of expenses in liquid assets.
It should cover everyday expenses and insurance premiums, electricity bills, child care costs, and installments. You could consider using a liquid fund or a short-term fixed deposit to keep the money for easy access, and you can use liquid funds or short-term fixed deposits.
You should also keep track of your cash flow, to help you better manage your funds. This type of platform will allow you to see your income flow, how much profit your business has, and who is behind on their invoices. Managing your invoice system will help protect the money you have coming in, allowing you to make more informed decisions on building your wealth.
Protect Your Health and Wallet With Insurance & Preventative Care
The sharp increase in private-sector medical expenses emphasizes the significance of obtaining comprehensive health insurance coverage. Without health insurance, a single, serious hospitalization might jeopardize your life savings. If you do not have access to employer-sponsored health insurance through your partner or other family, purchasing comprehensive health insurance becomes even more crucial.
Finding health insurance coverage while self-employed may be challenging but it offers better protection than no insurance. The key is to do your research and find an insurance policy for your specific needs.
In addition, pay attention to the old saying “An ounce of prevention is worth a pound of cure.”
Self-employed freelancers are pretty notorious for things like overwork and burnout. Both of which create stress that can lead to physical and mental health declines. And those can be expensive issues to get to the bottom of and fix.
Everyone who works for themselves — from developers to doctors, dog walkers, and anyone in between — should seriously consider measuring productivity vs. efficiency in their day-to-day work to find opportunities to work smarter, not harder. It’s all about preventing the stress that underlies so many modern maladies.
Track Your Expenses
When you work for yourself, you must keep track of your spending. Fortunately, many technological tools are available to assist you in this endeavor. You could consider using some of the tools available like Personal Capital, Mint, and Kubera to see which one works best for your situation.
Alternatively, set aside a day each month to go over your credit card and bank statements and chart it all in an old-fashioned manner. Whatever suits you — all that matters is that you recognize where your money is being spent and account for it.
This is an area of your organization where investing in a system to simplify things may pay off. It can be beneficial to keep track of how much time you spend managing your finances.
Find Alternative Ways To Make Money
Expanding your portfolio of income is the best way to build wealth. Find opportunities to make money, even if it’s just a few dollars at a time. These types of efforts can pay off big in the long run.
Do you own a garage or any extra space? You could rent it out to thousands of Americans who have too much stuff, putting some extra money in your pocket in the process.
Are you creative? Start making things that bring you joy. Sell them for a few dollars, and spread the love to those who admire your work.
Regardless of what you do to make extra money, keep your cash flow moving with more than one way to generate income. Use that extra money to save or invest and see your wealth start to grow.
Start Investing Early For A Happy Retirement
Self-employed people are often forced to build their post-retirement funds due to the lack of EPFs or other pension benefits. The problem is that most individuals wait until they’re in their golden years to start investing. As a result, they focus on more immediate financial objectives, such as saving for vacations, putting down payments on a house or a car, and so on.
Start investing as soon as you can, even if it’s just a few dollars at a time. Figure out what age you want to retire, and how much money you need to live for those years not working, and use an online calculator to break down how much you should start investing.
If you feel like it’s too much, start smaller. Once you begin setting money aside, you can use the snowball effect to add more to that amount each month, even if it only increases by a dollar at a time.
If you’re interested in investing in the stock market, get started today using a platform like E*trade. You can take your pick from long-term stocks and short-term risky moves. However, make sure you conduct proper research on the stock market before investing.
Make Goals And Pay Yourself
Let’s face it; many individuals forget to pay themselves when they operate their businesses. Of course, it’s understandable if you can’t pay yourself consistently at the beginning (depending on your type of business), but it’s a good idea to set a target date to begin.
Paying yourself, while intimidating, is easier than it may appear. First, ensure that you have a company bank account that is just for business income. Next, transfer funds from your business account to your account. A simple record may be all you need to get started. Then, as your investments and payroll become more advanced, consider hiring an accountant to set everything up properly.
Saving, while challenging, is critical. Tracking your costs is an excellent way to get a better idea of how much you might be able to save. Once you determine your spending trends, make some simple changes to curb your spending. This may imply foregoing weekends with friends or skipping that morning coffee at your favorite cafe. If you’re not ready to give up certain things, find better ways to save. For example, adopting ways to save on daily expenses like food and other essentials.
Use A Credit Card To Build Your Credit
Financing your business may be challenging with limited funds. Depending on the type of business you have, a business loan may be your best bet. While it’s possible to get a business loan with a low credit score, those with credit scores of 750 or above have a better chance of getting a loan or a credit card.
Many lenders have also begun to provide preferential interest rates to people with higher credit scores. Because a credit score cannot exist without a credit history, self-employed individuals with no credit history can increase their credit score by responsibly using their credit cards. Credit card transactions are treated similarly to loan transactions and are consequently reported to credit bureaus. Credit bureaus utilize these transactions to compute your credit score. Building up your credit score can set you up for financial success both professionally and personally.
While building your wealth is a lifelong process, taking the steps today to be a responsible, self-employed contributor will set you up for financial success. Take these tips to get started on building and protecting your wealth today.