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How to manage money when you're self-employed

MMI Copywriter

By Kim McGrigg, MMI Community Manager

When working on your business’s financial plan, don’t forget to develop a method for managing your new personal financial situation. Unfortunately, statistics show that many home-based businesses often fail due to poor financial planning. Fortunately, there are ways to make small business ownership work for you. Here’s how:

Don't underestimate your expenses. Fortunately, more than 40 percent of all home-based businesses require less than $5,000 for startup. However, there are many other costs associated with running a business. In your spending plan, don’t forget expenses such as child care, insurance, postage, gas, and dry cleaning.

Learn how to manage your income. Most self-employed workers have sporadic incomes. If your income varies from month-to-month, determine your average monthly income. Then, if you have a month where you earn more than average, put the extra amount into a savings fund to supplement less lucrative months.

Avoid relying on credit cards. If you need to use a credit card for business expenses, open an account specifically for that purpose. If you need money to launch your business, consider a small business loan instead.

Keep tabs on your taxes. Some self-employed individuals may have to pay self-employment tax in addition to their regular income taxes. To avoid tax-time surprises, periodically review your taxes throughout the year. Don’t forget to make necessary quarterly tax payments to avoid under-withholding penalties.

Maintain accurate records. Complete all of your paperwork on time, particularly if you are billing clients or customers. Many companies will take several weeks to process invoices. Keep copies of all receipts for tax time.

Finally, don’t hesitate to get help. Consider working with a lawyer who can help you with necessary, and sometimes complex, legal matters. You should also contact your insurance agent to make sure you have appropriate coverage.

To register for one of MMI's free small business webinars, visit the Small Business section of our website.  Also, be sure to download the free Entrepreneur's Guide to Personal Finance eBook.

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The cost of finding a new job


At some point during their career most people find themselves in the position of having to look for a new job. Everyone faces some sort of employment-related setback eventually – for a number of different reasons.

Most everyone is aware of the important things to do when this happens – update the resume and start working your network – but it’s also important to bear in mind the costs of finding and making yourself available for a new job, and to plan accordingly. The costs will differ depending on the circumstances, but consider a few that occur quite frequently:

Relocation expenses

Sometimes staying put isn’t an option, and that new job you secured will require an unexpected move. A move means extra expenses: packing, shipping, setting up new utilities, among many others. Many employers offer relocation assistance to new hires, so be sure to make this a part of the job negotiation process. Make a checklist of known expenses before your move so you are less likely to encounter anything unexpected.

Further education

These days, finding a new job often requires retraining or learning new skills. Entering an entirely new career path may be the only viable option for some. Before you embark, make sure you are clear on what path you’re taking and what questions you need to ask. Research the particular job you are pursuing in detail. Will it provide the necessary income to sustain you and your family? What are the projections for future employment in this field? In addition, consider both local brick-and-mortar and online education options for your education and training. If possible, talk to someone who’s been there before.

The in-between

Everyone should have a personal budget in place, but if you haven’t prepared one, a period of unemployment means you must develop that budget and stick to it. Establishing financial priorities will help you focus your effort and resources. If you have a budget in place, it might need a bit of adjusting due to the change in circumstances, but the important thing is to keep track of what’s going out and what’s coming in.

Also, consider looking for other sources of income during this period. It can help you maintain recurring bills and expenses as well as maintain important things like health insurance.

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Money Management International (MMI) is a nonprofit, full-service credit counseling agency, providing confidential financial guidance, financial education, counseling, and debt management assistance to consumers since 1958. MMI helps consumers trim their expenses, develop a spending plan, and repay debts. Counseling is available by appointment in branch offices and 24 hours a day, 7 days a week by telephone and Internet. Services are available in English or Spanish. To learn more, call
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