5 Mistakes to Avoid When You Manage Your Finances
<p>When you choose to become a self-employed worker, you select the freedom that an employee cannot have: the freedom of not having a boss, of determining your value, of choosing your area of expertise and your customers. On the flip side, there are duties. Freedom does not come free of charge. It comes with all the tasks you need to do to survive, including managing your finances. Unfortunately, even if it is an essential part of your business, it is not everybody that feels comfortable with it.</p>
<p>A business whose finances are chaotic loses development opportunities and credibility. It directly affects our loan request or our sales pitch. To avoid to miss them, here are 5 mistakes to avoid when you are a self-employed worker that manages his finances.</p>
<h3><strong>Combine Your Personal Finances With Your Professional Finances</strong></h3>
<p>One may think that you could save time by combining your finances. However, at the end of the year, you will regret it. We then suggest you create two different budgets. Contrary to popular belief, a budget should not only serve to know where your money goes but also to tell it where to go. It is essential to give each dollar a purpose to have good financial health.</p>
<p>When you separate your personal finances from your professional finances, it allows you to have a clear picture of how your business is doing. You will then be able to answer these questions: are my debts decreasing? Is the value of my business increasing? How much is in my accounts receivable? Besides helping you following your daily finances at one same place (quotes, invoices, expenses), you also give access to financial reports such as accounts payable reports, incomes, financial statements, and even tax reports. No more chaos at the end of the year! You will finally be ready to do your tax reporting stress-free. </p>
<p>PS: Use the secret code BACON15 to get a 15% discount on all Momenteo’s packages! You can also try it for free!</p>
<h3><strong>Not Having an Emergency Fund</strong></h3>
<p>When you have an emergency fund, it is like having a pillow when you fell on ice. Everybody wishes to have one when it happens, but some will tell you that it is a pipe dream. It may be a pipe dream to have a magic pillow; however, it is not the case for the emergency fund. Everybody can have one. In fact, everybody should have one.</p>
<p>An emergency fund, as the name suggests, it is for emergencies, unplanned events, and expenses. This can be a leaky roof, an off-season month, an illness. It can also be a customer who does not want to pay. In short, an emergency fund can save your life and your business. Most self-employed workers will say that it is nearly impossible to have an emergency fund, especially when they are starting. Make no mistake. You do not make an emergency fund overnight. It is not every day that you will have unplanned events or emergencies too. Therefore, there should not be a lot of cash outflows from your emergency fund. It will then grow at the same rhythm as your business will. Start with a small amount, whether it is $5 or $20 per week, and increase it with time.</p>
<p>An emergency fund should be equivalent to 3 to 6 months of expenses. As I said before, you do not make an emergency fund overnight. It only needs to be growing. Tell yourself that it will be the magic pillow that will save your business when you will have fewer contracts or if you become sick. </p>
<p>Consequently, if your corporate structure does not allow you to save money, do it personally. For my part, I use a <a href="https://wealthsimple.com/invite/9UK00Q" target="_blank">Wealthsimple</a> TFSA account for my emergency fund. I love to invest automatically without any worries. The fees are minimal (sometimes there are none), the platform is very easy to use, and their support team managed to reassure me. Otherwise, a line of credit can also help you in the meanwhile if you know how it works.</p>
<h3><strong>Not Planning an Amount for Your Taxes When You Receive a Payment</strong></h3>
<p>It may be difficult or unrealistic for some to save money each time you receive a payment, but if you do not do it, you will probably have a bad surprise at the end of the year. It is not necessary to do it each time you receive payment since there is another way.</p>
<p>Indeed, it is possible to have installment payments with the government. It means that according to the amount you will determine, you can send funds to the government to use it for your taxes. You can also save this money each month or two weeks to avoid any surprises; however, it needs more self-discipline. You must not confuse them with the emergency fund. Taxes are not an emergency. It is an expense that needs to be planned. You must not confuse your sales taxes that you need to send each three months. (Momenteo can help you with that!) Save some money for that too.</p>
<h3><strong>Wanting to Do Everything by Yourself</strong></h3>
<p>We sometimes think that we are superheroes and that we can do everything. It can sometimes put ourselves into undesirable situations. Although I know a lot about personal finances, I would not do my taxes myself. </p>
<p>You might be scared by the professional fees, but they can help you avoid mistakes even more expensive. Financial planning should also be done by professionals, especially if your business is growing fast. The return on investment will probably be worth the effort.</p>
<h3><strong>Deduct All Expenses </strong></h3>
<p>You may be tempted to deduct everything. It is, however, a costly mistake. Why? Because at the end, when you will want a loan to buy a house or a project, banks will be less inclined to lend you money. It is because of a lower income. Thus, yes, it is important to deduct expenses related to your professional activities, but it is also important not to abuse. </p>
<p><br />
Knowing how to delegate is one of the most beautiful tools of professional life. Unfortunately, it is also a luxury since we cannot transfer as much as we want to when we are a self-employed worker. It is why it is vital to learn finance basics. </p>
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<p>Veronique Gagnon</p>
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