Money Management for People Who Work From Home

by WorkFromHome on September 25, 2011

When you work for someone else and receive your salary on a regular schedule, creating a budget and working with what you’ve got is fairly simple. However, managing funds for a home business is a lot different and has a lot of potential pitfalls that are easy to miss. A big part of being successful in working at home is having a system in place to manage your money and the money of your home business. Since everyone’s personal situation and business needs are different, it’s hard to recommend a specific system in hopes that it will work for everyone. Instead, we’re going to provide you with some guidelines that you should take into consideration as you create your own plan for managing your money as you work from home.

The Barriers Between Personal Money and Business Money

One of the most common mistakes that individuals make when trying to manage the finances of a home business is that they have no clear barriers between money that is set aside for personal use and money that is still considered a part of the business itself. A basic way to create this barrier is to pay yourself a set hourly rate or a set weekly salary for your work. Depending on how you handle your finances now, it might take some cash flow reorganization to make this happen, but it’s worth it. The money that you pay yourself for your personal expenses should go into a personal account, and your business funds should stay in a business account. This is a standard accounting practice that will help you to start off on the right foot.

Saving for Taxes

Taxes are different depending on where you live. Even for people living in the United States, tax issues will be slightly different as you go from state to state. However, you should have a good idea of how much you’ll be paying in taxes, and you should always set aside money for your taxes as you go. Set up a special bank account just for your tax money, and use it in only two ways. The first way to use this account is when you deposit money into it. The second way to use this account is when you are paying your taxes. This account should not be used as a personal bank to give yourself loans. Once you get behind on taxes, it’s extremely difficult and stressful to get back ahead for people who earn money from home.

Good Record-Keeping is Critical

Every money management system for self-employed people should include good record-keeping. There are no exceptions to this. All income and business expenses should be kept on file, sorted by year. When tax time comes around, having all of this information organized and ready to go will save you and your accountant a ton of headache, and can actually lead to you saving money through increased deductions on your taxes. Good record-keeping also makes it harder to get behind on taxes, which can lead to big penalties and interest on the amount you owe. From a psychological standpoint, when you can look at your records as proof of your business growing and being successful over time, it can help you to stay motivated to keep working hard since you can see your work paying off in very concrete terms.

Reinvesting in the Business

The final thing we want to mention for you folks that work at home is that you should always be looking for good opportunities to reinvest your profits into your business. If you pay yourself a set amount that allows your business account to grow, then you will have funds to invest over time. Investing these funds well with strategic promotion or outsourcing can improve your long-term earnings and help you to expand your business. Like all other business costs, you should keep good records of all of your efforts to reinvest in your home business and try to create ways to track whether or not your investments generate a net profit. By testing different investments and tracking the results you get from each, you can maximize the effectiveness of the money you spend on improving your earning rate.

Related Articles:

Previous post:

Next post: