Being your own boss has a lot of advantages. The freedom it provides as well as the feeling of building your own dream instead of somebody else’s is very attractive.
One of the downsides is that it is easy to fail when cash flow is a problem. Usually, it’s debt that piles up and creates a cash flow bottleneck that dooms many self-employed people.
To ensure success and to stay out of trouble, it pays to come up with a strategy to keep your debt limited when you’re self-employed. And, when you have the right formula, make sure to stick with it to stay debt-free for years after.
In this article, we will go over some ways to keep your debt manageable to keep you on the right path.
Make sure your expenses are business related
You have to trim the fat when you are newly self employed. There is no way to avoid taking on debt but make sure those expenses are for your business.
For instance, don’t buy a car unless you need it for your business. If it is a business car, then you can deduct some of it. Look into leasing a car when you are starting out as it costs less up front and you can generally deduct your lease payments in some cases.
Intelligent Car Leasing has more information regarding business car leasing, so start there.
You may not like living like a hermit, but try to limit entertaining to taking out clients or potential customers. And, that new iPhone can wait unless you need it for work.
Come up with a budget
Budgeting is hard when you’re self employed as income is not steady. There are periods when you are flush and others when you’re struggling to make ends meet.
Make sure to have a budget that accounts for this.
Average out your income for the last six months or so. Then average your expenses including how much you pay towards your debt.
The number you have from your expenses and debt is how much you should make sure you always have to pay on time. Once you take this out of your average income, this is what is left for the rest of the month.
Take a hard look at what you are paying for that is not an actual expense or payment towards your debt. That is what you will be living off of. Stop going out to eat. Stop paying for Netflix. Get rid of cable and in general tighten the belt.
Use windfall to pay debt down
There will be periods in which you make a lot more than usual. Instead of spending more, make an extra payment towards your credit card or mortgage. It may be tempting to use that money for something you feel that you need, but your priority at this point is to get your debt down to manageable levels.Cash Flow problems can sink your business. Make sure that you have good lines of credit when you need it by keeping the credit limits down.