8 Personal Finance Tips for Solopreneurs

Managing your money can be one of the most challenging aspects of being a business owner. This is especially true if you’re used to working at a 9-5 job.

Even if you didn’t earn as much as you would have liked at your job, it was comforting to know you’d receive a consistent paycheck every two weeks. And your employer took care of things like health insurance, disability insurance, and taxes for you.

But now that you’re the boss, all of those responsibilities are on your shoulders. That can leave many people unsure of what to do or where to get started. It’s especially true if you’re a solopreneur. Who or what is a solopreneur exactly? An entrepreneur who runs the business solo, without the assistance of a team or staff is at times, referred to, as a solopreneur.

Plus there’s the added stress and worry associated with managing the multiple aspects of a business all by yourself. At such times, it’s easy to overlook your personal finances in order to concentrate solely on growing your business. However, to be able to focus on your venture with complete dedication and enthusiasm, it’s important to get your personal finances sorted out first. To help you get started, here is a list of compiled valuable personal finance tips.

8 Money Management Tips for Solopreneurs

If money is a frustrating and confusing topic for you then I get it. A section on personal finance tips unfortunately isn’t a part of the school curriculum. It’s why none of us were taught how to manage our money in school or learned the logistics of managing a business.

Fortunately, personal finance is a skill that can be learned over time. And it’s an especially crucial one to have, for every business owner, big or small. Here are eight actionable steps to get you started:

1. Save up at least three months of expenses

Regardless of the type of business you run, you’re going to have good months and you’re going to have bad months. And during the good months, it can be really tempting to spend all the extra money you make. (Been there, done that!) 

But do yourself a favor and save up at least three to six month’s worth of expenses. These include housing, groceries, utilities, transportation … and not to forget insurance, which is a prudent provision that offers immense peace of mind. Things like housing and utilities should be simple to measure, as these expenses are typically set up on a fixed payment schedule, meaning you pay the same amount each month.

Other expenses like groceries and transportation may be a bit more flexible, and change from month to month, which can make them much more difficult to accurately track. So, for this type of spending, try to use averages when calculating how much you should set aside for them in your monthly budget.

One of the best finance tips for business owners is to save for a rainy day; in other words, put money aside for emergencies, because you never know what the future may hold for you or your business.

In my experience, it will save you so many headaches down the road. There is literally nothing more stressful than starting the month knowing you don’t have enough money to pay your bills. Having an emergency fund will allow you to keep a clear head and keep making the best decisions for your business. If you need help saving up the money, maybe you need to explore earning some extra money instead.

2. Separate your business and personal expenses

One of the best personal money management moves you can make when handling your business is to keep your business and personal accounts separate! To effectively manage your private finances, it’s important to have a distinct account for the same.

So, even if you’ve only earned $20 in your business, I want you to go set up a business checking account. It will not only give your business more credibility but also make things so much easier for you down the road, both personally and professionally, when you’re making good money.

Besides, if you just throw everything you earn into your personal checking account, your finances are going to get confusing very quickly. It’ll be hard to separate your personal expenses from your business expenses and that can create a huge nightmare come tax season. In many cases, having a separate business account also helps reduce personal liability, in the event the venture doesn’t take off, or worse, the business owner faces litigation or has to declare bankruptcy. Business accounts typically enjoy special protection, which understandably doesn’t apply to personal accounts.

Segregation of your funds will also help you carefully plan your budget and organize your finances for both personal and business expenses. Knowing your spending threshold, be it for your own use or for your enterprise, will lead to more informed and practical decisions and make you more accountable. Above all, it will be easier for you to realize when you’re about to go overboard with any expense, whether it is for private or personal purposes.

So it’s time to debunk the myth that you can have a mixed personal and business account if you’re a solopreneur. Like any business owner, solo entrepreneurs must have separate accounts to reduce risk, get more organized, and improve their financial decision making.

3. Set up an LLC

Many new business owners get started as sole proprietors. This type of business structure means there is no legal distinction between the business and the business owner.

You are the recipient of any money your business earns, but you’re also responsible for any debt, lawsuits, or liabilities your business incurs. This puts you at significant financial and legal risk.

That’s why I recommend setting up a limited liability company (LLC) right from the start. When you set up an LLC, you’re not held personally responsible for any debt or liability your business incurs.

Setting up an LLC is more work than just operating as a sole proprietor, but not by much. You’ll choose your business name and then file your articles of organization with the state you live in and pay a fee. 

4. Set measurable goals

All business owners need to set realistic and measurable financial goals. What do you actually need to earn in your business every month? 

None of us are pursuing self-employment so we can barely scrape by from month to month. We want to be able to create an ideal lifestyle for ourselves. A personal finance tip that can help you do that is quite straightforward but just as effective: figure out exactly how much money you need to earn to maintain an ideal lifestyle and save for your future.

From there, you can create informed business goals. And you may find that it’s easier for you to take action in your business because there is a purpose and vision behind these actions. 

5. Creating recurring income every month

One of the hardest parts about running a business is the unpredictable income every month, which can cause a business owner’s finances to go awry. So your goal should be to start establishing as many sources of recurring income as you can.

If you provide a service-based business, you can do this by getting as many clients on monthly retainers as possible. Or you could provide some type of subscription-based offering. Just try to find ways to create as much predictable revenue as possible. 

6. Set aside money for taxes every month

From now on, every time you get paid, you need to set aside roughly 20% of that money for taxes. Ugh, I know. Taxes are an annoying but necessary part of being a solopreneur. 

If you live in the U.S., you’re going to have to pay your estimated taxes quarterly:

• January 15
• April 15
• June 15
• September 15

And if you miss your payments, you could get stuck with additional fees when it comes time to pay your annual taxes. So do yourself a favor and start following this personal finance tip: start saving for taxes immediately.

Personally, I like to use the Catch app to save for taxes. I connected the app to my business checking account and every time a new payment hits my account, Catch reminds me to set aside a percentage of it.  By using technology to ensure I set aside money for taxes every month, I ensure I follow this important personal finance tip without fail.

7. Track your business expenses and income

You need to have a system to track your business expenses and income every month. That way, you’ll have a clear picture of your business finances when your quarterly and annual taxes are due. 

I like to use QuickBooks to track my expenses. The software connects to my bank account and automatically updates any new transactions. From there, it’s easy to go through and categorize all of my expenses. 

8. Hire an accountant

If you only take one of the personal finance tips that I’ve outlined in this article, make it this one — hire an accountant. I’m not a financial planner or a CPA, so please don’t rely on my advice alone! Hiring a professional is going to be so beneficial for you.

When you work with an accountant, you’ll feel more confident knowing that you’re current on your taxes and all of your financial systems are in place. And a CPA can make recommendations for how you can maximize your business deductions.

Right now, you may be a solopreneur but nobody builds a business all by themselves. So reach out to the right professionals and ask for the help you need. It may be hard to see this as a personal finance tip as it’s not advice that may be directly related to your private finances, but it can drastically improve your finances, starting from day one.

By hiring the right people to help you achieve your business goals, you increase your probability of success, which in turn will help you generate more income and contribute towards strengthening your financial condition.

Final Thoughts

Managing finances as a solopreneur takes some getting used to, but with the right personal finance tips and strategies in place, it can be done. With these simple yet effective practices, personal finance for solopreneurs doesn’t have to be a tightrope walk. Set financial goals from the start, establish a contingency fund, prioritize recurring income wherever possible, and don’t forget about paying those quarterly taxes. Being proactive will save you a lot of time and hassle come tax season.

Contributor’s opinions are their own. Always do your own due diligence before investing.

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