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5 Personal Finance Tips for Struggling Independent Contractors

Managing finances can be a struggle for independent contractors. Already not easy to begin with, being a contractor whose income varies from week to week means personal finance requires a different approach and planning.

Of course, without a salary cap, the potential for greater income along with better work flexibility balances it out. All you need is shifting your perspective a bit to take into account how your self-employment revenue comes in.

Here are a few bits of advice for independent contractors struggling with their personal finance:

1. Build up a savings buffer.

Unlike employees who can count on a steady source of income, independent contractors need to be more mindful with the money they earn. To avoid living from paycheck to paycheck, you’ll have to set up a financial buffer.

Creating a safety net will get you through tougher times when revenue slumps and money’s tight. Moreover, you can lean on these funds when you get sick or in case of emergencies. Set as much as you realistically can, and of course, stay away from unnecessary spending.

This may seem like common sense advice, but you’ll be surprised at how little some people manage to save from their wages.

2. Create different budgets.

Now because your revenue can vary month to month, you should also have corresponding budgets for both high- and low-income months. Doing so allows you to be able to take care of essentials first and keep your emergency funds untouched.

You can additionally prepare for tougher times by making sure that you save more during the busier months for your business, or when you gain an unexpected windfall.

3. Keep your personal and business finances separate.

If you haven’t done so already, separate your personal finances from your business’s. Your revenue stream from independent contracting should ideally be placed in a different bank account from which you’ll pay expenses accrued from running your business.

RELATED: 7 Essential Tax Tips for Independent Contractors

While this may initially be confusing and tedious, a clear divide will help in the long run, especially come tax time. In fact, you can also consider opening another savings account where you’ll set aside money for your taxes. This preparation lets you avoid mistaking tax money for cash-on-hand.

4. Treat yourself!

With all this talk of budgeting and saving, you might be scratching your head at this part. But just as you work hard and gain tighter control of your finances, you should also balance it and reward yourself from time to time.

If you’ve ever received surprise gifts from bosses and clients before, you know how they can boost your morale and actually get you working your best. As a self-employed contractor, you’re your own employee, so don’t forget to give yourself a bonus!

5. Save for retirement.

Alarmingly, a large percentage of independent contractors neglect saving for retirement. Unlike employees whose Super gets paid by their employers, you’re responsible for your own contributions.

Having retirement funds set aside is critical. And the earlier the better, as these compound over time. Without it, you could be ‘struggling’ with your finances well into the future, and that’s exactly what you don’t want.

Struggle now, relax later.

Finding success in independent contracting is a challenge, all the more so because you need to have a better grasp of your own finances than most employees. However, the payoff is undoubtedly worth it.

Heeding these tips should help you gain clarity in your enterprise’s health and drive you closer to your financial goals.

If you would like assistance in managing your invoicing and other accounting activities as a self-employed individual, please feel free to contact us to learn how Certica can help in your Enterprise Journey.

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