Taking Care of Your Finances When Self-Employed: What You Should Know
When you first decide to take the plunge and become self-employed, all you can think about are the many benefits that being self-employed provide. After all, setting your own hours, controlling the projects you take on and how much time you devote to them, and being able to work from the comfort of your own home have a major appeal. However, along with all of the benefits of self-employment come the responsibilities. Get to know some of the ways you will need to manage and take care of your finances as a newly self-employed worker. That way, you will avoid making a mistake you will regret later.
Don't Forget about Your Taxes
Working for an employer rather than for yourself does have one distinct advantage. As an employee, you do not have to pay the full amount of income tax for the amount of money you are making. Your employer pays a significant portion of the taxes.
Many first-time self-employed workers do not realize this and drastically underestimate the amount of money they should set aside to pay the IRS for taxes. Generally speaking, a person who is self-employed should plan to set aside around 30 percent of their income for tax purposes. This amount may be high after deductions, but it is always better to get a tax refund than to find out you have to pay in at the end of the year.
Don't Skip Out on Health Insurance
The prospect of having to find your own health insurance plan can be daunting to anybody. And when you are self-employed and you do not yet know how much money you will be making, the idea of spending hundreds of dollars a month on health insurance seems like too much of a burden.
However, there are other options. The Affordable Care Act may have less expensive health insurance options for you. And if you were on your employer's health insurance plan before becoming self-employed, this change in employment and insurance coverage may qualify you for these reduced-rate plans.
Group insurance may also still be an option. Your church, a business association for your field, or even freelance workers associations may have group insurance policies like Fiscal Fitness that you can join. This significantly reduces your insurance costs and can give you better coverage with lower deductibles than you would otherwise find.
Now that you know of some of the financial responsibilities you will need to take on when you become self-employed, you can be sure to take the necessary steps to ensure that you properly manage your finances in your first year of self-employment.