What are the best financial management practices for self-employed professionals?

Being self-employed can be rewarding, but also challenging when it comes to managing your finances. You need to plan ahead, track your income and expenses, pay your taxes, and save for your goals. In this article, you will learn some of the best financial management practices for self-employed professionals, such as how to:

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1 Create a budget

A budget is a tool that helps you allocate your money according to your priorities and needs. It can also help you avoid overspending, reduce debt, and increase savings. To create a budget, you need to estimate your income and expenses for a given period, such as a month or a quarter. You can use a spreadsheet, an app, or a notebook to record and track your numbers. You should also review and adjust your budget regularly, as your income and expenses may vary depending on your projects, clients, and personal circumstances.

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2 Separate your accounts

One of the most important financial management practices for self-employed professionals is to separate your personal and business accounts. This will help you keep track of your income and expenses, avoid mixing up your funds, and simplify your tax filing. You should have a dedicated business checking account, where you deposit your payments from clients and pay your business expenses. You should also have a separate personal checking account, where you transfer your salary or draw from your business account and pay your personal expenses. Additionally, you may want to have a separate savings account for your emergency fund, retirement, or other goals.

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Adria Quinones-Masur

Sustainable Home Ownership Advocate, Financial Literacy Evangelist and Educator, CEO & President, Content Creator, Opportunity Finance Network Fellow
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Starting a business requires a lot of legwork. When you are in the dynamic environment of just setting up your business, the last thing on your mind is separating your personal and business expenses. A lot of times we make the mistake of thinking it is not an issue since the business really isn’t earning anything yet. But do yourself a favor, keep the personal and business expenses separate. Open a business checking account and credit card. Track the business expenses on a simple spreadsheet and on the receipt, noting the reason for the expense. If you have a tax preparer, they will thank you for it. If you prepare your own taxes, you’ll be happy you did this. Believe me, you don’t want to be going through receipts wondering what they are.

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CPA.Julius Cheche

Certified Public Accountant | County Budget Controller at Office of the Controller of Budget | Public Finance Management (PFM) | Public Policy and Governance
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Create separate bank accounts and credit cards for your business. This separation simplifies accounting, helps in tax preparation, and provides a clear picture of the business's financial health. By doing so, we are able to ascertain whether the business is doing well or not.

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3 Set aside money for taxes

As a self-employed professional, you are responsible for paying your own taxes, such as income tax, self-employment tax, and sales tax. You need to set aside money for taxes every time you receive a payment from a client, and pay them on a quarterly basis. You can use a percentage of your income, such as 25% or 30%, as a guideline for how much to save for taxes. You can also use a tax calculator or consult a tax professional to estimate your tax liability more accurately. You should keep your tax money in a separate account, and avoid spending it on anything else.

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Judson Meinhart, CFP®, BFA™, CTS™

I help you get more life out of your money ⛳💰 | Financial planner for high achievers who'd rather be golfing | Author: Golfer's Guide to Money
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Making quarterly estimated payments are one of the biggest differences between being an employee and self-employed. When you’re self-employed, you’re responsible for making estimated tax payments four times per year. If you don’t, you might be subject to a penalty when you file your taxes in April.

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4 Track your invoices and payments

Another essential financial management practice for self-employed professionals is to track your invoices and payments. You need to keep track of who owes you money, how much, and when. You also need to keep track of who you have paid, how much, and when. This will help you manage your cash flow, avoid late fees, and prevent disputes. You can use an invoicing software, a spreadsheet, or a notebook to record and track your invoices and payments. You should also follow up with your clients regularly, and send reminders or receipts as needed.

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5 Invest in your growth

As a self-employed professional, you are your own boss, but also your own employee. You need to invest in your growth, by learning new skills, expanding your network, and improving your services. This will help you increase your value, attract more clients, and earn more income. You can invest in your growth by taking courses, attending events, reading books, joining communities, or hiring coaches. You should also set aside some time and money for your professional development, and track your progress and results.

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Elisaveta Karakoleva

Project Manager | Digital Marketer | Finance Background
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Invest in your personal and professional growth by learning new skills sets that are in tune with the current market requirements. Think out of the box and expand your professional circle.

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6 Seek professional advice

Finally, one of the best financial management practices for self-employed professionals is to seek professional advice. You may not have all the knowledge, skills, or resources to handle your finances on your own. You may benefit from hiring a professional, such as an accountant, a bookkeeper, a financial planner, or a lawyer. They can help you with tasks such as preparing your taxes, managing your books, planning your goals, or protecting your assets. You should seek professional advice when you need it, and consider it as an investment in your success.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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What are the best financial management practices for self-employed professionals?

1

2

3

4

5

6

7

1 Create a budget

2 Separate your accounts

3 Set aside money for taxes

4 Track your invoices and payments

5 Invest in your growth

6 Seek professional advice

7 Here’s what else to consider

Interpersonal Communication

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What are the best financial management practices for self-employed professionals?

1

2

3

4

5

6

7

1 Create a budget

2 Separate your accounts

3 Set aside money for taxes

4 Track your invoices and payments

5 Invest in your growth

6 Seek professional advice

7 Here’s what else to consider

Interpersonal Communication

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