Money management is not everyone’s cup of tea. Quite the opposite, really. Many people dread all financial matters not only because they might not be so good with numbers, but because it is time-consuming too.
However, you can’t escape managing your finances, even if you work online. On the contrary, when you’re running an online business or working remotely as a freelancer, you’re the one who has to take care of your bookkeeping and taxes.
But, don’t fret because there are a few steps you can take to keep your finances in order. In this article, we will list a few tips to help you with your finances.
Don’t Mix Your Personal and Business Finances
If you’ve started an online business, be smart from the beginning, and keep your personal finances separate from your business finances. Many people in the online business game fail to take this seriously and eventually discover that they’ve made a mistake.
Mixing your personal and business finances leads to confusion when the tax season comes. By the end of the year, you’d have so many receipts piled up that it would take you forever to sort them out.
You should preferably use a separate business card for your business expenses from the start. Even if you’re a freelancer working one project at a time, you should still aim to have a separate bank account. This will make it easier to calculate your income at the end of the year thanks to bank statements typical for business bank accounts.
There is another benefit of keeping your personal and your business finances separate and that is more payment options. Since working online (whether you sell products or services) usually involves quite a few transactions every month, it makes sense to use a business bank account because it offers more flexibility in sending and receiving payments.
Use Accounting Software to Manage Your Business Finances
Managing your finances is made a lot easier thanks to numerous accounting software tools available online. Some of them are completely free albeit they come with a few limitations, but many of these useful apps cost no more than $10/month. When you create an account, the software allows you to categorize your receipts, expenses, and more.
Track Your Income And Your Expenses
When you’re working online, it may be difficult to track your income because sometimes, you receive dozens of payments via online payment providers like PayPal. However, keeping track of your income every month is crucial for keeping your finances in order. The same goes for keeping track of your expenses.
Knowing how much you make and how much you spend will give you a clear insight into how well you’re doing. Not to mention the fact that you can write some of your expenses off as business expenses and save on taxes when the tax season comes. This especially applies to online businesses where you incur many costs that could be deducted from your tax bills. If you keep tracking your income and expenses meticulously, you’ll find that you can save quite a few dollars on taxes (either through tax deductions or tax credit).
This is another example of why the aforementioned accounting software tools are useful. They enable you to track these things easily.
Take Budgeting Seriously
We know that budgeting without a fixed, steady income every month can be complex. This is why many self-employed individuals who make money online simply give up on the idea. It’s hard to stick to a budget when you don’t know how much you’ll earn and when will the money come.
But don’t think of budgeting as a limitation. Think of it as a guide to your finances. By tracking your income and expenses every month, you can create projections that allow you to plan accordingly. You’ll have an idea of what your average earnings are and you can create a budget based on these numbers. You can come up with a plan that involves allocating a certain sum for your living expenses such as rent, bills, food, luxuries, entertainment, etc. You can also be more efficient at saving money when you have a budget that you stick to.
Calculate how much you need to cover your living expenses, business costs, etc. If you make more, great! But if you make less than expected, also not bad, because, hopefully, your budget allows you to stay reasonable with your spendings so that you have some money left over each month.
Don’t Forget Your Taxes
Speaking of budgeting and expenses, you should not forget to plan for the tax season. Instead of waiting for the end of the year and being shocked by your tax bill, try to deposit a small percentage out of every payment you receive into a separate savings account.
This way, when the time comes to pay your taxes, you’ll be well-prepared for it. You may have to transfer a bit more than what you saved but that wouldn’t be such a problem. Best case scenario, you’ll have saved more than you owe in taxes so you’ll get a nice refund!
Once again, a tax software tool can help you with this. These tax calculators make it simple to calculate how much you owe regardless of your state or province.
Do a Review at the End of Every Month
Now that you have your finances in order, don’t forget to review them now and then, or preferably every month. At the end of the month, do a review to see how well you did. How much you earned and spent, how much you set aside for taxes, how much you deposited into your personal savings account, etc.
Having a budget without conducting month-end reviews won’t mean a lot for your financial stability. Consider this a sort of an obligatory month-end report except that you’re reporting to yourself so there’s no reason to feel anxious. You can also use one of the many online platforms for these monthly reports on profit/loss.
Michael has been working in marketing for almost a decade and has worked with a huge range of clients, which has made him knowledgeable on many different subjects. He has recently rediscovered a passion for writing and hopes to make it a daily habit. You can read more of Michael’s work at Qeedle.