Your finances are a whole other ball game when you’re self-employed. Above and beyond the risk of income fluctuations, you will have additional expenses to think about, such as health care, saving for retirement without a pension plan, and perhaps even finding investors in order to grow your business. You may also qualify for specific tax deductions, such as a home office deduction if you work from home every day. If you’re self-employed or considering making the move to self-employment, the following tips can help you to make a solid financial plan to help get you through those first crucial years of self-employment.

Your Financial Plan

When you’re self-employed, you may find it difficult to partition your personal or family finances and your business finances. You may be forced to work without a salary while your business is getting off the ground and even after a few years, you might not be making as much as you did as an employee. Consider how this may impact other areas of your life. You may be willing to sacrifice a new car or other luxuries, but what about your spouse and family? Are there expenses you cannot avoid, such as childcare, healthcare, or a mortgage? You need to have some money set aside before you start your business, in case you need something to fall back on before you turn a profit.

Calculating Your Expenses

Your financial plan should include all of the expenses you currently have and foresee having in the future. If you’ll be working as a freelancer or independent contractor, you probably won’t need much to start your own business – just the equipment required to do your job and you probably already have this. Indeed, over 40% of businesses run from home warrant less than $5,000 in startup costs. Of course, there will be ongoing costs to running your own business, depending on the services or products that you offer. When calculating your expenses, be sure to consider fuel costs, childcare, postage, insurance, and any additional clothing you may need.

Managing Income

Most self-employed people have sporadic incomes. This is unfortunately one of the unavoidable factors of being your own boss.

If you’ve worked consistently for several months, you can calculate your income on a month-to-month basis and determine your average monthly income. Whenever you make more than the average monthly income, put it in a savings account and keep it as a backup fund should you happen to make less in a month.

Keeping Records

When you’re self-employed, your financial records should be meticulous. Keep records of your paperwork, receipts, invoices, payments, etc. so that you’re not left scrambling to piece together a financial puzzle when you have to file your taxes. Remember that most self-employed people have to file taxes on a quarterly basis instead of annually. While you can get away with filing once in your first year, you shouldn’t make a habit of it, as you may have to pay a large sum to make up the difference. If you can’t keep track of everything yourself, consider hiring an accountant.