I almost added this to the myth busting section of 6 Figure House Spouse, but it really is worthy of being its own stand alone. I recently attended an online seminar on money management, and I was told nothing that I was not told by my grandfather when I was six. Things like keep your receipts, make sure you track how much money you make and here are my suggestions for you to use (I have no proof but I can bet that they got a kickback for dropping those names), and make sure you use online tax filings like H & R Block, or Turbo Tax. My god… The information is insanely profound, and I am sure no one has ever used Turbo Tax before and has never heard of them with their five thousand commercial they play over and over after the first of the year, every year. Let’s give you real information that can actually help you. More than just how to file your taxes, but don’t worry we will help you with as well. freelancing is a great way to make money. According to the 2019 freelancing report, it is a trillion dollar industry.
Money, Money, Money!
Many people struggle with making money and keeping money. I was once one of those people until my son was born. For many of men, and yes, we should be able to admit this, we do not like spending money unless it is necessary. Then there are the rest of us we can’t spend the money fast enough on things that do not matter. This section will help you with figuring out exactly what you need to do to begin to save money, and hopefully you will no longer be getting caught in emergency situations that could have been avoided in the first place with just a little better planning. The best thing I can suggest is that you do all the below suggested methods, and discover what works best for you:
Everyone always says to make a budget, but we all think we can go without it, or we think we have it all in our heads and we can handle it. The truth of the matter is that never works. It is simple just to grab a piece of paper and write down everything that need to be paid this week, next week, for the rest of the month. Then stick the piece of paper to the fridge, or on your desk. Somewhere you will have to look at it every day. This will help to keep you on track.
The Envelope System
Take out a set number of envelops, for this example we will pick five envelopes. Each envelope has written on it what each envelope is for. Example, 1. Bills 2. Car 3. Mortgage/rent 4. Emergency 5. Fun Money in the beginning may be empty, and it may stay empty for a while. That is okay! It is completely normal! It is better to be short in this envelop than anywhere else. When I started this process, my fun money envelope stayed empty for months just to make sure I had enough money in every other envelop. I promise you it will eventually begin to fatten up.
With every payday divide up your pay. You do not have to put the full amount in each envelope. If your rent is $700 a month, and you get paid every week then divide 700 by 4… It’s $175, or if you know next week’s pay is going to be a little short then put in an extra $20-25 this week. When next week hits that extra money will be appreciated. Then repeat this process for every envelop.
The car envelop is not only for fuel purchases. It is also for tires, oil changes, generalized maintenance, if you plan on buying a car and need a down payment or you are looking to pay for a car with cash. All of these go into the car envelope.
The emergency envelop, is does not mean “Oh crap! I ran out of money this week I have an emergency”… No! That is not an emergency, that is improper planning. This is a common thing happens in the beginning, but once you get used to doing it this becomes easier. I suggest building up the emergency envelop to about $500, a little bit at a time of course, and then aim to build it up to a month’s worth of the other envelops. The aim to build it up to two months, so on and so on until you reach about five months. Then just let that money set there. Important side note! If you use money in the emergency envelop for an actual emergency, then you must replace the money use. That is how it works.
A Separate Bank Account
Why would you need a separate bank account? Well, it is simple, taxes… The dreaded taxes and being self-employed means that you must pay your taxes either quarterly, twice a year, or yearly. Depending on where you live this can be almost 40% of your gross yearly income. To find out what your tax rate is you can always google “Tax rate for self-employment in_______” This will give you a very good idea of what your state charges. If you take out this percentage into a separate bank account every time you get paid, then when it comes time to pay then you already have the money ready to go. No having to scrimp and save just to pay the government. Sometimes, depending on the politics of the time, you may have paid in too much for taxes. This means it is bonus time! That’s right! You can take that money out at the end of every year, and use it for things such as vacations, putting it into the envelope system, or just go wild and spend it on novelty items for fun. This separate bank account is different than using the envelope system. If you do both at the same time you will find yourself in a much better position when it comes to handling your money.
Keep Your Receipts
This goes towards the tax portion. Keeping your receipts, and bills can be tax right offs at tax time. If you are like me, and write for webpages for a living, or maybe you are doing digital design at home, your internet bill, and electricity could be a tax write off. Everything you buy for your computer is a tax deduction. If you travel fo0r work, keeping your gas receipts is a tax deduction, and so is car maintenance. These are just a few examples of the potential tax write offs for the future. The first year keep every receipt and go have your taxes done. If you put the money in the separate bank account, like previously mentioned, then the amount you saved up to pay into taxes begins to dwindle. This means that the bonus that was previously mentioned becomes bigger. That is a great reason, and motivation to keep those receipts.
This is just part 1 of the money management that will help set you up for success. These things may seem like huge steps, and quiet a pain at first, but if you just do them, and have faith then the payoff is noticeable in just two or three years. You will find yourself in a position to take vacations, retire early, do whatever you want. That is really what we have decided to do when we choose to become self-employed, isn’t it?