Healthy Financial Habits for Solopreneurs

As a solopreneur, it’s easy to get wrapped up in your business and neglect your finances. Because entrepreneurship is variable and uncertain, it’s important to keep your business finances healthy. Here are five financial habits that will make running your business easier.

Use separate bank accounts

It is easy to run every transaction out of your personal bank account. The problem is it can blur the line between personal and business expenses too easily.

Instead, you should set up a separate bank account to use only for your business income and expenses. It can be a full business bank account. If you’re just starting out, even a separate personal account may be okay.
When tax time rolls around having separate accounts will make it easier to find your expenses throughout the year. This means you can quickly determine what you can deduct from your taxes or not.

If you are ever audited, it also makes the process simpler. All of your business transactions will be together. This makes it easier to prove what you bought for your business is able to be claimed.

Finally, the veil between business and personal stays intact. If you are ever sued, it is easier to show that your business and your personal assets are separate. This means your personal assets are a little more protected (provided you have other legal protections in place).

Have an emergency fund

Many self-employed people face a feast or famine cycle in their earnings. One month, they’ll be raking in the cash. The next, they don’t have enough to cover rent.

This can make it hard to manage your own personal finances. Your bills don’t go away just because your profits dropped. So you need to plan for it.

Keep an emergency fund just in case your earnings drop too low. You should start your emergency fund with a month’s worth of expenses. This way, you can still pay the bills if things take a turn for the worst. As you are able, you can gradually build this up to the recommended 3-6 months’ worth of expenses. (More is better if possible.) Park your funds in a separate savings account so they’re always there.

It might be difficult to save a large amount of money. Take your time. The peace of mind that comes with it is more than worth it.

Set a scheduled paycheck

When I started freelancing, I withdrew money basically as soon as I got it. While this worked, it wasn’t exactly the best situation. I had no idea when or how much money I had coming in.

Eventually, I set myself up on a paycheck system. Every two weeks, I transferred my earnings into my personal account. Setting up a payday allowed me to keep a personal budget just like I did when I was employed at a company.

It doesn’t always have to be the same amount. But, you’ll have a general idea of what to expect. This makes managing your personal finances a lot less stressful.

Set a business budget

Hopefully, you have a personal budget. But, you should also have a business budget. This will help you figure out how much you can spend in your business or how much you can withdraw as a paycheck. You can have a plan for your finances.

To do this, you need to figure out how much you can expect to bring in during one month. It’s better to underestimate your income since it can be lower in certain months. Then, figure out what you need to pay out each month. This could be your web hosting, online services, or other professionals. Add them all up and subtract this from your income. The amount that’s left is what you can use to pay yourself or to buy other things for your business.

Save for taxes

Since you’re not an employee, you need to take care of your own taxes. Chances are, you actually have to pay quarterly taxes. These estimated payments take the place of withholding from an employee’s paycheck.
It’s tempting to simply pay the tax bill when the deadline comes around. But, you should actually be setting money aside for taxes before they are due.

Each time you get paid, set aside a certain amount into a separate bank account. This could be 15-35% depending on your tax situation. When quarterly taxes become due, you already have money set aside to pay.