Thriving Financially as Your Own Boss

Hi Reader,

Welcome to The Money Series and if you are new here, thank you for signing up. Personal Finance can feel ambiguous and overwhelming, but I am here to help simplify the journey.

Do you sometimes get tired of the 9-to-5 grind?

Don’t worry, some of us also feel that way sometimes. Do you dream of being your own boss and setting your own hours? Or perhaps you’re already running a side hustle or full-time business and are looking to strengthen your financial foundation? Today’s newsletter is for you.

In most of my previous newsletters, a common theme is the assumption that you earn regular income as a salary. But today, we're shifting our attention to the world of variable income. Whether you are freelancing full-time, running a side hustle, or planning to dive into self-employment, these insights will help you build a strong, sustainable financial foundation.

Have a Separate Business Account

Creating a dedicated business account is one of the smartest steps you can take. Aside from presenting you as a professional to your clients, a business account simplifies financial tracking. You get to separate your personal finances from the business finances and know if the business is profitable. This financial tracking is also helpful when applying for grants and funding opportunities.

You may consider having a separate tax account depending on your business and location. For example, if the Company Income Tax rate is 20%, you can send 20% of the revenues that you earn to that tax account. This ensures you’ll have funds available when tax season arrives, making your year-end a lot less stressful.

Build and Maintain an Emergency Fund 

With the unpredictability of freelance income, having an emergency fund is essential. Aim for at least 6 months’ worth of your baseline expenses in a separate account—consider 12 months if you have dependents. This buffer can help cover unexpected costs or sustain you during downtimes.

Getting started might be challenging, but you can begin by setting aside smaller amounts regularly. Gradually, you’ll reach your goal. And if you ever need to dip into your emergency fund, make a plan to replenish it to stay prepared for the future.

Improve your Financial Literacy

Freelancing and business ownership require you to wear many hats, including managing finances. You need to understand financial concepts such as gross vs. net income, invoicing, expenses, and taxes. Retirement planning is another area to focus on because being a freelancer makes you responsible for your retirement savings.

Maximize Tax Benefits

In some countries, business owners enjoy favorable tax treatment compared to employees. By registering your business and maintaining separate financial accounts, you can often reduce your tax burden. Similarly, businesses are allowed to deduct expenses - travel, marketing, and stationeries - before taxes are deducted. Hence, this can lower your taxable income and tax burden.

Understanding these tax benefits and staying current with tax laws can save you a substantial amount over time. For instance, a portion of your home office expenses might qualify as a deductible if you work from home. Consulting with a tax professional can help ensure you take advantage of all applicable deductions and credits.

Treat Yourself Like a Business: Track Your Income and Expenses

As a freelancer, you must be vigilant about profitability. Regularly track your income as this not only tells you whether your business is profitable but also provides insight into areas for improvement. Just like any thriving business, prioritize paying yourself first by automating your savings.

Consider setting a monthly “salary” to pay yourself, even if your income varies to get a sense of stability and structure. By treating yourself as a business, you’ll foster better habits, which are vital for your financial health and business longevity.

In Conclusion…

Switching from a regular 9-5 to freelancing is exciting but comes with challenges. Before you take the leap, build up an emergency fund with at least 6 months’ worth of living expenses.

As a non-salary earner, you are your own boss, and you are also your own business. This means that the success and sustainability of you and your business rely on your financial acumen. The journey of freelancing and entrepreneurship is filled with learning experiences. By building a strong financial foundation, you’ll be better prepared to navigate the ups and downs of variable income.

Feel free to send in your questions; you may be influencing the next newsletter!

Act Now:

• If you own a business or side hustle, register the business and open a separate business account if you have not already.

Reflect on This:

• Are you a 9-5er by choice or by bills?

Till next week, I am rooting for you, money-ly!

Dee

P.S.: if this email was shared with you, please subscribe here and share it with anyone who is a freelancer or owns a business.

Disclaimer: This does not constitute financial advice. Please conduct your research or consult your financial advisor for important financial advice.