Side-hustle money management isn’t as easy as some people think, and you can make a mess of it pretty easily. However, you can avoid some of the worst mistakes if you think of your solo career as a business, especially as a freelance worker. So how can you help yourself when it comes to finances? From separate bank accounts to paying yourself, here are some tips.
Get to Grips with Taxes
Taxes are changing in countries like the UK and the US. Side hustles and microbusinesses are now being brought under tax umbrellas, so you may have to pay if you earn over a certain amount. However, even if you make a minuscule amount of money, you must report your income. You use tools for MTD for self-assessment that can work out how much you potentially owe. This way, you can set aside the money and have it ready to pay in the event you need to.
Use a Separate Bank Account
As soon as you can, open a separate bank account to receive money from freelancing gigs or payment for goods and/or services. When you use your personal account, it can be confusing what money belongs to the business side of things and what is yours. It also makes it a lot easier to manage the finances. With a separate account, you don’t have to manually sort data for income and expenditure when doing the taxes, and apps like QuickBooks make this easier.
Side-Hustle Money Management with Tracking
A UK study found that 75% of sole traders are unsure of the tax and VAT thresholds they fall under. What is this important? Not knowing where your business stands means you can potentially miss out on deductions that decrease how much tax you have to pay. When you turn your side hustle into a business, you will probably make enough to pay taxes. However, you need to track income and expenditure to ensure you get the best possible tax deal available.
Budget and Pay Yourself a Salary
With a side hustle such as an online service or a freelancing sole trader business, income can be unpredictable. This means you can have a lot coming in one day and nothing the next. This also makes budgeting more challenging. However, budgeting is key to managing a healthy financial sheet. Plan the budget for the business and personal needs based on what you think you are likely to spend, and pay yourself a chunk so you can meet personal expenses too.
Build a Large Enough Emergency Fund
Businesses can take a downturn, and it isn’t uncommon for freelancers and small side hustles to take a hit. This is especially true if your business is based around trends. Although business is likely to pick up, it can take some time. So what do you do if you need cash and have no income? You can’t really do anything. But there is a solution. It is a massive advantage to have an emergency fund saved up that you can dip into for personal or business needs.
Summary
Understanding taxes and meeting obligations will help you manage side-hustle money more effectively. It also helps to track income and expenditure using finance sheets and apps. However, an emergency fund can be a lifeline when your side-hustle business slows down.