Disclaimer: Outschool and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors to inquire about your own unique situation.
As a self-employed independent contractor, the line between “business finances” and “personal finances” can be pretty fuzzy. This means that it’s even more important to create a system for tracking your online teaching income and expenses, then use that info to establish a business budget. This budget should be separate from your personal budget and reflect your earnings and spending as a business owner. An accurate budget is essential for:
- Setting and achieving money goals
- Recognizing seasonal trends and planning for income highs/lows
- Allocating funds for business expenses and taxes
Here are a few easy ways to get yourself on the path to financial success and feel confident that you’re managing your money as an educator entrepreneur.
Step 1: Record your revenue
Every successful business owner needs to know how much they’re earning and how much they’re spending. Let’s start with how much you’re earning, aka your revenue. Revenue is how much money you make before you take out taxes, expenses, etc. As an independent contractor teaching on Outschool, your revenue is the money you receive as a payout from Outschool.
Get into this mindset: “If I don’t write it down, it didn’t happen!” Make it a habit to record your revenue every time you receive a payment – or at least once or twice a month as if you were receiving a regular paycheck. It’s a good idea to create your own spreadsheet or document for your business budget. To get started, check out one of the free templates listed here or this simple revenue and expense tracker created by the Outschool team.
If you’ve been teaching classes on Outschool for a while but are just now starting to record your revenue, you may want to go back and add previous earnings to your spreadsheet. As you look at your payments over time, see if you can identify seasonal highs and lows or significant periods of growth. Knowing which months you can expect more or less money is crucial for creating an accurate forecast of your finances.
Step 2: Track your spending
Small businesses usually divide expenses into two main categories: fixed costs and variable costs.
Fixed costs are expenses that happen on a regular basis or at a reliable rate. Examples include taxes, internet service, and monthly subscriptions to teaching tools. If you own an organization, payments to your educators may also fall under this category.
Variable costs are expenses that may happen every once in a while or unexpectedly. Examples include new teaching resources and fixing broken tech equipment.
Create a new tab in your budget spreadsheet for tracking these expenses. Remember – as an independent contractor, you can deduct some business expenses from your taxes. Regularly documenting the costs to run your business will help you keep a record of those deductions and be ready come tax season.
Pro tip: Since taxes aren’t automatically deducted from your payments, help out your future self by subtracting them from your revenue right away. You can even set up your spreadsheet to automatically subtract a percentage of each revenue entry, so it’s easy to see what you should consider your “take-home pay.” We’ve put together a simple template with this feature here.
While you should consult with a tax professional to determine what amount of your Outschool earnings you need to set aside for taxes, a good rule of thumb is about 20-30%. If you end up setting aside more than you need, then you get to enjoy your own little tax refund down the road!
Step 3: Give every dollar a job
Once you’re able to see how much you earn and spend at a glance, it’s time to put your money to work. Looking at your income and expenses, establish:
- How much income you can take home. Depending on what works best for you, you can look at this on a monthly, quarterly, or yearly basis. Most people tend to think of income on a monthly or quarterly basis.
- How much money you need to allocate for business expenses. If you plan ahead for expected business costs – even variable costs, like a once-a-year laptop repair or technology upgrade – then you’ll feel prepared instead of panicked when they inevitably arise.
- How much is left over? Right now, all of the profits you make from teaching may need to go straight to your personal budget – and that’s okay! You may reach a point where you can allocate some of your revenue specifically to help you build your business. This could look like putting money toward web hosting for your personal website, marketing campaigns, or those new teaching materials you’ve had your eye on.
Pro tip: Opening a business bank account can help you stay organized and streamline your bookkeeping. You can easily track your business income by depositing payments to a business checking account, and then withdrawing money directly from that account when you need to make a business purchase. Using a business account can also make things easier when tax season rolls around. Learn more about opening a business bank account as an independent contractor.
Money is often the biggest cause of stress for any entrepreneur, and potentially even more so when you may not have started your teaching journey thinking that you’d become a business owner overnight! Working with a clear budget that you control can help you feel more confident and set realistic goals for your business.
To get more tips on how to grow as an educator entrepreneur, check out these stories, guides, and courses all available for free on the Educator Library.