How to Secure Your Financial Future as a Self Employed Entrepreneur
I'm a digital marketing executive with a passion for technology and writing.
If you're a self-employed entrepreneur, becoming financially stable should be a priority of yours. But it can be rough if you have no idea where to start. With a little bit of learning and skill, you can plot a course towards a safe financial future.
Here is how you can secure your financial future as a self-employed entrepreneur:
Have an emergency fund.
Emergency funds are used when you run into a worrisome situation.
According to a survey
, only 37% of Americans have savings that could cover for a $500 or $1000 emergency. The remaining people will have to take measures that may include reducing their spending, putting the expenditure on a credit card, or borrowing the required sum.
The best way to protect yourself from a financial setback is to have some funds stored away. These funds should be liquid, so you should be able to access them on a moment's notice.
A pretty big majority of people prefer to have their emergency fund in cash.
Having some savings to fall back on is a great thing to work towards. Nobody wants to be in a tough situation, but life unpredictable. To combat whatever life throws at you, you should have at least an emergency fund.
As a self-employed entrepreneur, you will absolutely need to go beyond an emergency fund. This should be the absolute bare minimum that you should have saved up.
Save at least three months of your expenses.
Most first-time entrepreneurs do not know how to handle money. Let me explain.
If you've been in the workforce for a while, you've probably developed a habit of waiting for a paycheck. Once you get your paycheck, you pay off the bills, save money, get new things, etc.
As an entrepreneur, the only time you're getting paid is when you complete a project or make a sale. You won't be getting paid for putting in the hours anymore. This kind of shift can be overwhelming for people who are not entirely prepared.
Since you aren't sure where your next paycheck is going to come from, it makes sense for you to have some savings stored away. By the way, your emergency fund isn't supposed to be used for these scenarios, as it's meant to be used in the case of emergencies.
To become financially stable, you will need savings that will cover your expenses if you're not able to generate revenue for a particular month or two.
Having three to six months of savings will provide you with a financial buffer and keep pursuing your entrepreneurial dreams. It will give you just enough time to assess what's wrong with your current strategies and why you've not been able to generate money from your business.
Assess your expenses.
People spend a lot of money on things that they have no use for. Entrepreneurs who want to become successful do not have this luxury.
Self-employed entrepreneurs that are just starting need to get their expenditures and savings in check. Since entrepreneurs don't have the financial security of a traditional job, you will typically need to save more money than you used to.
One of the best ways to save or invest more money is to reduce your expenses.
Frugal living has been popularized because of movements like FIRE
(Financial Independence, Retire Early). Frugal living, coupled with a desire to grow your business, will only help you reach your business goals faster.
Yes, it will take a little time for you to figure out when and where you can get the best deals on items you want, but it's a fair exchange. At the end of the month, you'll end up saving money that you can store away.
Once you have figured out your current expenses and tried to reduce them, you'll end up with a better monthly budget.
Once you have an emergency fund and a few months' worths of expenses saved away, you can then begin to start investing.
There are several investment vehicles for you to choose from.
If you have no idea about investing, you should consider investing in mutual funds first and foremost. The great thing about mutual funds is that you can start investing immediately, even if you don't have any prior knowledge or experience.
With mutual funds, an asset management company takes care of investing your money for you. Usually, mutual funds are pretty diversified, which makes them a safe option.
Another kind of fund that you can consider investing in is index funds. To put it simply, index funds mimic the financial markets. If the markets go up, you make money. But if the markets decide to take a turn for the worst, then you lose money.
Generally, the US stock market provides an average return of around seven to eight percent, which is not bad at all.
Other great investment options include ETFs, REITs, etc.
If you're someone that wants maximum security, you can opt to invest in government-backed bonds. These bonds have a significantly lower rate of return if you compare them with mutual funds or the like, but they are more secure, and it's highly likely that your investment will remain safe.
You don't need a lot of money or resources to start investing. Any amount you can invest is better than nothing.
Build a side hustle(s).
If you're an entrepreneur, then you already have the right amount of hustle in you. You aren't afraid of putting in the work and don't care about what people have to say.
Once you get your primary business going and achieve some form of stability, its best to start working on a side hustle.
But to be really successful at creating businesses, you'll have to invest heavily into understanding your customers, as well as customer service.
For your audience to really notice you, you'll have to go the extra mile. Having things like chatbots or a live chat app
on your website, will really help you understanding and engage with your audience and online visitors.
The faster you understand and learn about your audience's pain points, the quicker your business will be able to fix things and succeed.
Things can change extraordinarily fast for entrepreneurs. It's best to have something to fall back on in desperate time, and small side hustles are a great way to keep you going.
For entrepreneurs, financial security is essential. Having a safe financial future allows them to continue taking risks and pursuing their dreams and ambitions.
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