Planning Your Finances When You Work from Home

If you are self-employed, you know that it requires a little more financial planning to make sure that everything is properly taken care of in terms of your cash flow. Budgeting when you work from home is a delicate exercise that requires that you plan for the future — especially if you earn different amounts of money from month to month.

David over at My Two Dollars has an interesting look at the way he arranges his finances so that he is prepared to cover all of his expenses (including estimated quarterly taxes!). Some of his tips for making sure that your budget is set for being self-employed:

* Direct all of your income to a central location.

* Pay yourself out of this central location.

* Charge businesses expenses to a single credit card to keep track of your business expenses.

This is some good advice. He recommends dividing what you need for the month by four so you can figure a “weekly paycheck”. I actually look at what I got the previous year and divide it by 12 to get an idea of my monthly income for the year. Of course, the numbers are different each month, but it gives me a rough idea. On months where I beat the average, I put the extra aside for the future, so that it can make up for months when there is a shortfall.

I also have two separate accounts. Since I am an LLC, I have a business checking account. All of the income goes there first (makes it easier for taxes, and in the event of an audit), and then I pay myself out of it by moving most of it to my personal checking to cover all of my expenses. I can move money from the personal account into savings and have some automatically withdrawn for the retirement account from there. I leave enough money in the business account to cover business expenses.

How do you organize your work from home income?