Proven tips to avoid getting into debt and manage your finance.
Financial stability isn’t something that most people are granted when they become self-employed. While being your own boss can offer you more power and freedom than you’ve ever had before, the money isn’t always easy to come by. If you have a few quiet months at work, or your business isn’t quick to blossom, it can do quite a number on your bank account.
Unfortunately, this means that there’s a risk of going into debt when you’re self-employed, which obviously isn’t ideal. However, you can usually avoid this happening if you take the right precautions.
By following these five tips, you should avoid going into debt with your new venture.
Adapt your lifestyle:
You only live once, so you ought to make the most of every day, right? While that’s true, that doesn’t mean you shouldn’t make sacrifices from time to time, especially when self-employed.
It can take a while for your business to become profitable, meaning that you have to think twice about where your money’s going in the early days. You’ll want to save where you can, which means giving up certain luxuries or swapping them for cheaper alternatives. It can be difficult to do, but if you don’t adapt your lifestyle now, you may regret it in a few months time.
Just think, while it might be hard to give up your daily Starbucks trip or Friday night takeaways, this isn’t a permanent goodbye. It’s only until your finances are a bit more stable.
Keep track of all spending:
Continuing from the last point, it’s important to ensure that you track where all your money is going. If you’ve never bothered to budget and think deeply about your finances before, this may be a shock to the system. However, it’s essential if you want to avoid any surprise expenses from catching you off guard.
By tracking your spending, you may be able to identify areas where you can save money, as well as seeing how you’ve fared each month. With any luck, this will motivate you to keep a tighter hold on those dollars as you continually try to improve yourself.
Save during the good months:
As your business starts to grow and the workload with it, you might find that some months will be financially stronger than others. There may well be times when what you take home is enough to cover essential expenses and then some, giving you extra money to play around with. You mustn’t get carried away with this, though.
As tempting as it may be, you should try and save most of this cash rather than splurge on something nice. If you want to avoid debt, then you’ll potentially need that money if and when the workload drops again.
Plus, you have to remember that there are other expenses you need to worry about now that you’re self-employed, including your pension. If you want to be comfortable in retirement, it’s worth setting up something like a solo defined benefit plan sooner rather than later. As experts in this field, Saber Pension can deal with most of the legwork, so you don’t have to. All you need to worry about is setting aside the money each month to put into the fund.
Go into the venture prepared:
Knowing that a self-employed business can be financially unstable, it’s always smart to ensure you have some money set aside before starting your venture. That way, should things be slow to progress, or if you have a lot of downtime, you won’t immediately end up in debt.
Obviously, it can take several years to build up enough money to do this if you don’t have any savings already. However, the safety net this provides is largely worth it. Unless there are people in your life who can loan you the money, you may just have to wait a little longer for your dream to become a reality.
Use 0% interest credit cards:
Should you start to go into the red, you may be tempted to use a credit card to help you stay afloat. However, this can take you down a dangerous path, especially if your business continues to underperform financially. Before you know it, you might be in thousands of dollars’ worth of debt, which you’ll then have to find ways to get out of.
While the best solution here would be not to turn to credit cards, this may be your only option. If that’s the case, try to only go for ones with a 0% interest rate, or as close to that as possible. You don’t need to be dealing with interest on top of the money you already owe.
While it may seem like your prospects of self-employed success are bleak, that’s not true. However, you have to be prepared for the first few years of your new business to be financially tough.
Things shouldn’t be too bad, though, if you just keep these tips in mind.