Inflation is rising around the world, and the cost of living is soaring as a result. It’s a challenging time for everyone, but inflationary pressure presents a unique challenge for those in self-employment. Here we share the PocketSmith guide to navigating inflation when you’re self-employed.
Before we share our hot takes on inflation for self-employed workers, let’s break down what’s happening with inflation. Inflation is the rate at which the cost of goods and services increase. A healthy economy has a stable level of inflation around 2% — anything above or below that is cause for concern.
In 2022, inflation is rising for a few reasons, including:
All of these factors affect self-employed workers differently. Here are some things you can do to manage the effects of rising inflation.
The most immediate effect of rising inflation is rising prices across just about every industry, so you may find the costs of materials and systems you use have increased. This can impact your profit margins and the overall profitability of your business activities. Spend some time checking in with your costs of doing business, and establish whether the gap between your expenses and your revenue has changed.
If you’ve noticed your profit margins are decreasing as a result of rising inflation, it could be time to cut costs or increase prices. Maintaining a sustainable amount of profit is key to ensuring your business survives this inflationary period. Recalibrating your pricing strategy can unlock new financial efficiencies for the long term, too.
Think about how your consumers will be experiencing the effects of inflation, and the extent to which it could impact demand for your product or service. If your business sells a luxury product or service, you may notice demand decreasing as your consumers feel the pinch. On the other hand, if you produce essential goods and services or provide a cheaper alternative to things that are commonly used, you could find demand increases as the cost of living rises.
Factor demand fluctuations into your pricing strategy and overall view of the coming months in order to best bolster the cost of inflation on your self-employment income.
As a self-employed worker, your income is responsible for paying both your business expenses and covering your personal costs of living. Don’t forget to review your personal expenses, too. You might need to pay yourself more to cover your own costs of living, which could in turn impact your business profitability.
Using a personal finance software like PocketSmith can give you a clearer understanding of how much you need to be paying yourself, while identifying areas to save money.
Emma Edwards is a finance copywriter and blogger, on a mission to humanize the financial services industry by creating meaningful content that’s accessible and empowering. You’ll find her penning money tips at her blog, The Broke Generation, sharing financial insights on Instagram, or injecting life into content for her business clients.