Do you want to pay yourself a consistent salary? Have money set aside for your business taxes every year? Stop running your business on credit? Pay off debt? Start saving? Start enjoying your money without feeling guilty?
I believe that business owners and independent contractors, including private career practitioners, can achieve all these things and be successful when they practice proper money management.
The main cornerstone of money management is a balanced budget. The word “budget” has a bad reputation, so I do understand the inclination to shy away from it. But the reality is that budgeting and money management does not need to feel restrictive at all.
Often, when people hear the words budget and money management, they associate it with restriction and no fun. I know because I hear this from my independent-contractor clients all the time, especially since they need to have two budgets: one for their business and another one for their personal life.
However, I have noticed that business owners are more likely to be successful with managing their money if their budgets are aligned with their values and goals.
Here are four things career practitioners should consider when creating your budget so you can stop dealing with financial stress, take control of your business and personal money and start living the life you want.
Most business owners don’t know how much money to pay themselves, which means they’re more likely to overspend. One of the first steps that business owners need to take to figure out how much to pay themselves is to know what their personal expenses are.
When you have a clear idea of your personal expenses, you can figure out how much your take-home should be. You can then estimate how much your business revenue needs to be, taking taxes and business expenses into consideration.
As Jane Claire Hervey writes in Forbes, what you spend is what you value. I believe this applies to both your business and your personal life.
However, when you first start looking at your expenses and where you spend money, these two things might not be aligned. Here’s a process to help you change that:
- Write down what you would describe as your core values: family, relationships, career, health, spirituality, etc.
- Then, take a look at your spending habits and reflect (without judgment) on where you’ve been spending your money recently.
- Compare the two lists. Do your financial habits reflect what you value? If not, there’s a good chance that you’ll never feel satisfied with your financial status, regardless of the amount of money in your bank account.
To start recalibrating, use your values as a guide for how your budget should look. If you value family above all else, instead of spending money on another handbag or a new home decor item each month, set aside funds for a family activity.
It will take some time to readjust, so give yourself grace here. Also remember that your values can change with time, so be sure to evaluate this list regularly.
Your wants and your needs
In a similar way, it’s important to distinguish your wants from your needs. When you’re analyzing your recent spending, how do you feel? Were the purchases you made well thought out or impulse decisions? Were they things you needed and are still grateful you purchased, or did the excitement wear off after a few days?
“Business owners are more likely to be successful with managing their money if their budgets are aligned with their values and goals.”
Our world is full of temptation, and it can be easy to get sucked into marketing tactics, trends and purchasing to “keep up with the Joneses.” If you want to take control of your finances, it’s important to begin to recognize what purchases are worthwhile, important and things you genuinely need, compared to things you want in the moment. This isn’t to say that you can never simply purchase something because you want it – it’s just about being more intentional.
When creating your budget, first determine how much your “needs” cost you each month. Then, see if there’s room for some “wants.” Leaving room for both means you’ll be more likely to stick to your budget, because it doesn’t feel as restrictive.
What are your personal, business and professional goals? Do they involve retiring early? Travel? Becoming debt-free? Owning a home? Map out the goals you have for the next few months or years.
I should stress here that as an independent contractor, your retirement will look very different from someone who is permanently employed, and this needs to be reflected in your budgets.
Know that these goals won’t be achieved overnight; they take small steps over a period of time. So, start now! Craft your budget keeping these long-term goals in mind and commit to putting money aside each month in support of these.
Yes, it might be harder in the moment to avoid impulse spending, but when you recognize how much more fulfilling it will be to achieve your bigger goals, saving becomes a lot easier. Cutting back in certain areas gives you space and room to grow in other areas – the areas that are more important to your desired lifestyle and future.
I hope this post helps you recognize that effective money management doesn’t have to feel restrictive. In fact, if done well, it will actually give you a lot more freedom and opportunity both in your business and personal life.