How Does Self-Employment Impact Personal Finances?
Updated: Dec 12, 2019
Many individuals have the typical mindset of working for an employer soon after graduation. Only a few have the proper mindset and guts to join the self-employed bandwagon.
Self-employment is the state of working for oneself as a freelancer or a business owner. It takes a robust mindset, ample knowledge, and appropriate skills, as well as the right attitude to get into the world of entrepreneurship.
While many admire these self-employed individuals on the assumption that they are financially well-off, are these people better off financially? How does self-employment affect personal finances? We’ll answer these questions in the following section. Keep reading to learn the impact of self-employment to personal finances.
What the statistics have to say
Let’s take a look at some statistics showing how self-employment correlates with personal finances. Most of these survey results are largely positive, indicating that personal finances have significantly changed the lives of people who have started working for themselves.
50 per cent say they earn more money
40 per cent say they have more personal savings
38 per cent say they have a better credit score
33 per cent say they have more disposable income
35 per cent say they have less personal debt
The statistics show that self-employment translates into better personal finances. That is not to say that self-employed people do not have some financial challenges. Even small-time business owners need a business accountant to help them ensure they maintain their financial health.
What cash flow challenges self-employed encounter
In line with the survey conducted above, the same respondents did admit to some challenges related to being self-employed. These are:
Adapting to the cost of living
Inconsistent cash flow
Too many expenses
Although only 19 per cent say they “always” have cash flow problems, a whopping 80 per cent of survey respondents admit to having personal cash flow problems at one point. Furthermore, the novice entrepreneurs are more likely to struggle with cash flow than veterans. People who have been self-employed for ten years or more are less worried about cash flow.
How to prevent cash flow problems for self-employed
Since cash flow remains to be a personal finance problem among self-employed, it helps to know how to prevent the common cash flow problems. Some go to the extent of hiring a business accountant to handle their small-scale business. However, if you plan to handle your finances yourself, here are some tips for getting on the right track:
Sales Projections: It’s best to project the sales for the coming year so you can come prepared. You can do so based on your past transactions and prospects in the pipeline.
Immediate Invoice: It helps to find out how soon you can invoice your customers. Delayed invoice means delayed payments. The faster you ask for payments, the quicker you’ll obtain them.
Receivables Tracking: Utilizing small business accounting software can help you track when invoices are due. Doing so can help you track receivables and act quickly on them.
Cash Flow Monitoring: It makes sense to have a cash flow statement. This can help you track money coming in and out of your business.
Ultimately, the vast majority of people say that self-employment allows them to live the kind of lifestyle they want. Despite the stress of self-employment, it makes sense to take effective measures to prevent cash flow problems. Consider all the valuable advice outlined above, and you’ll set yourself to a financially liberating world as a self-employed. If not, why not hire a business accountant? If you can’t handle the finances yourself, it’s best to seek professional accounting help that can make a difference for your overall business success.
If you’re looking for a business accountant or bookkeeper on the gold coast, get in touch with us today for a free consultation.