When you’re self-employed, you have the benefits of working independently and doing things your preferred way. But with this independence comes risk, especially when it comes to finances. If you’re solely responsible for your income, and don’t answer to a boss or manager, you’re taking on financial risk that would be the responsibility of your employer if you worked in a traditional job. There are ways, however, to lower your financial risk as a self-employed person.
Look at all your expenses
If you’re just starting out as a self-employed person, or you’re experienced in working for yourself but are searching for ways to reduce your risk, the first step is to consider all your business-related expenses. Look for ways to reduce your spending and put those savings away into an emergency fund. Also consider how you can reduce your personal expenses by spending less on non-essentials so you can put that money towards your emergency business fund. When you’re self-employed, you may experience fluctuations throughout the year and that emergency account can help you get through the leaner times.
Reducing debt
Using credit cards and taking out loans is sometimes necessary when paying for business expenses. But debt can create a huge financial strain if you find yourself in a bind where you can’t pay it off. Look for ways to fund your business that don’t involve taking on more debt. This may include seeking grants or investors to provide you with the funds you need to keep your business running. If you find yourself in a time of excess, consider using that extra money to pay off your business debt.
One of the most important qualities for successful self-employment is understanding financial risk and finding a balance between risk and reward. Being self-employed comes with many risks that traditional employment does not, which is why it’s essential that you do what you can to minimize that risk. Saving for emergencies, reducing debt, and spending less on non-essentials can help you use your resources in the way that benefits your business most.
