Financial Planning for Self Employed & Businessman

Self-employed or starting own business is becoming a  popular option due to growing opportunities. Internet has played a big role in creating large number of opportunities in almost all sectors- from healthcare to financials.

As a self-employed or businessman you are deprived of numerous advantages available to the salaried class. Regular paycheck, retirement benefits like PF, Superannuation and many others. There are advantages too like car and other asset expenses which are not available to salaried individuals. But the benefit of regular income and savings exceeds any other benefits. Hence, any adverse situation can lead to ride a huge debt which can crush your self-employment aspiration and can force you in a serious debt management mode.

To avoid crippling debt and common mistakes, a proper financial plan is needed which can help you in managing your finances personally and professionally. Following are the financial factors which should be considered and included in the financial plan before you start journey to become self-employed:

Emergency Fund: As a self-employed or a businessman ups and down will be a common phenomenon. There will be months when you will have sufficient income rolling in while in some months income will be hard to come by. How frequent it happens will depend on the nature of the business. To avoid running out of cash during hard times, create a six month provisioning or emergency fund. This will help in meeting regular expenses thus protecting you from falling in any kind of debt management.

Budgeting: Separating personal financial planning from business planning is very important. Create a budget for both. This will help in keeping track of expenses incurred in your business and personal capacity. Self-employed who starts with a proprietor concern, tend to do expenses for both from the same bank account. This creates problem as reconciling accounts for your business becomes difficult and personal expenses go overboard. Manage separate account for both. This will help in managing expenses within limits you have prescribed.

Pay Yourself: Since your income will not be regular and debt will pile off if there are hard months, pay yourself first. This will help in generating a regular income and keeping a check on the expenses. Decide a regular salary cut from your business income which will help you in saving for yourself.

Goal Identification: Identifying your goals is the key of achieving your financial wellbeing.In personal financial planning every individual have some common financial goals like children’s planning, retirement, buying a house or a car etc. It’s necessary that you identify your business goals and plan accordingly. This will help you in making necessary changes which might occur due to change in circumstances related to your business.

Source(Your pocket Money)