Comments on: Financial Planning for Self-Employment: What’s Different?

By: Lenore

Lenore — Fri, 14 Mar 2008 11:05:26 +0000

Living on disability for 3 years, I’ve picked up a few frugal habits. Some you may know, but I’ll focus on what helped me most in making the switch to less disposable income. First and most importantly, CASH is king. You mentioned putting your credit cards away, and that’s a great start. Eventually you may cancel all but one or switch to debit as I did. Seeing money dwindle from a wallet reminds you not to squander it. I give myself $100 cash to carry a week, and when it’s gone, it’s gone. Secondly, dare to be cheap and who cares what the Joneses do or think? Any way I can save money without breaking the law is fair game. I sneak candy into movie theaters and make free lemonade from water, lemons and sweetener at restaurants. My boyfriend was mortified the first time I grabbed empty boxes from the shelves at a bag-it-yourself grocery store, but why pay even a few cents for unneeded bags? Garage sales and Freecycle.com rock, and it’s fine to give secondhand or re-gifts as long as they suit the recipient and look new. Not having to maintain a professional image means you can save money by driving an older car, wearing cheaper clothes, going longer between haircuts, etc. With time to plan, you can tackle many tasks you formerly paid to have done.

By: Katie

Katie — Wed, 12 Mar 2008 11:47:11 +0000

I’m self-employed for the past 3 years, earning about 1/3 of my DH’s pay. He has enough withheld to cover my taxes, so that part is covered. Now that you no longer have an employer, you no longer have the employer-provided LIFE insurance, do you have enough coverage?!?

By: Carrie

Carrie — Sun, 09 Mar 2008 22:27:46 +0000

In our self-employed household, we are meticulous about tracking all expenses, and maintaining thorough records. I highly recommend using some software (we use Quicken Home and Business). If has saved us DAYS of time when it comes to figuring our taxes. We have used a CPA, and have found that to be worthwhile. Doing so has actually saved us money, and even though we have the know how to take care of all of the forms, we really would just rather pay someone to do it. Using an electronic system for record keeping allows a great deal of flexibility, and your accountant will love you for it – much nicer than piles of receipts for them to sort through!

My other thought regarding self-employment has primarily to do with ones attitude towards work. We have encountered others in my husband’s field of work who have as much opportunity as my husband does, and yet they seem to struggle to achieve the financial goals they have set. Why? They have an “employee mentality,” and struggle to realize the full benefit of governing one’s self. It manifests in a variety of forms – expecting others to pave the way, looking at the paycheck and the work in terms of “what is the minimum I must do to get to the dollar amount I need in order to survive this week,” and then quiting early instead of pushing through to get a more money for just a little bit more effort.

Schedule efficiently. Once you have a better feel for how You work best, scrutinize your work week and see where you can become a better time manager. Consider that if you choose to have your children at home with you during the day that childcare is a full time job, and it will significantly impact your working from home, especially with young children.

By: Jason

Jason — Thu, 06 Mar 2008 01:28:40 +0000

I have an irregular income (I’m a Leased to owner taxi driver). One thing that has helped me a lot is the automatic transfers from checking to savings. If I had a regular income I might regularly move a fixed amount, But I found my banking site lets me regularly move a Percentage of my balance to savings. So every week 5% of the balance of my checking moves to savings, that way I will automatically save more when business is good and less when its bad. I really like the autopilot nature since I’m kind of ADD and so when I forget to check up on it for months at a time I find it’s still running smoothly.

By: Esme

Esme — Wed, 05 Mar 2008 17:06:43 +0000

I am going on my third year of self employment but second year of full time self employment. I just got my taxes back from the accountant and was amazed to find I had completely overestimated my taxes by a lot of money. This is because I estimated taxes on all my income but there are so many business deductions that I could take that this wasn’t necessary.

First off, I would advise setting up a SEP 401(k) and contributing the max both personally ($15,500) and as an employer (there is a calculation based on your income) if at all possible. This is completely tax-free income.

Also, tax-free are your health insurance premiums. And, of course, all business expenses are deducted off of the gross receipts for your business. My advice would be to keep a detailed account of your expenses and set aside a dedicated office in your house for your business. All house expenses for the percentage of your house dedicated to business can be deducted. This includes cleaning supplies and maintenance, etc.

I would check out a small business credit card like American Express Simply Business – they give cash back for things like office supplies, cell phone, and gasoline.

That’s all I can think of for now.

Good luck!

By: tabletoo

tabletoo — Wed, 05 Mar 2008 14:58:18 +0000

I mentioned business licenses earlier but I forgot to say that if you don’t need a license, don’t get one. They are a big hassle mainly because they set you up for undesirable interruptions. They are a public record and all sorts of vultures (i.e. poor hard-working salespeople) will contact you trying to sell you business stuff. And you’ll get lots more junk mail – for credit offers, for office supplies etc. If you do have to get a business license, don’t use your personal phone number or home address. Actually it’s a good idea to get a PO Box and a separate phone line and email anyway for your business or businesses.

By: John

John — Wed, 05 Mar 2008 07:02:40 +0000

Entirely responsible for my own income tax, Social Security, etc. That is the hardest parts to get use to.

By: Brian

Brian — Wed, 05 Mar 2008 03:03:05 +0000

Trent, have you given any thought to starting another blog and/or book proposal based on your self-employment experiences?

By: DNA

DNA — Wed, 05 Mar 2008 00:32:54 +0000

An LLC is still required to submit quarterly tax payments–sadly I know this because I had to pay a small penalty a couple of years ago for underpaying the quarterly payments.

By: Amber

Amber — Wed, 05 Mar 2008 00:30:07 +0000

Some self-employed advice-

Learn to do your business taxes and accounting yourself instead of hiring someone, not only will you save tons of money, but its also useful to know how and where your money should go, and what things you can write off. I recommend TurboTax for BUsinesses…helped us out a lot this year. :)

By: Matt

Matt — Tue, 04 Mar 2008 22:49:16 +0000

Planning ahead is very smart. You have to assume the worst case scenario and expect there to be some down times. If everything goes well there won’t be, unfortunately you never can tell. Smart move initially only paying your minimums until you have a better understanding of what the new financial landscape will be.

By: Cathy

Cathy — Tue, 04 Mar 2008 20:38:17 +0000

I’ve been self-employed for several years and agree with the previous suggestion to schedule an entire day off once a week. I call it Irresponsibility Day. There’s always something you could be doing for your business, so you have to give yourself explicit permission to NOT do it, or you feel never-ending pressure.

With writing work, errors & omissions can become an issue. Some people get E&O insurance (I think the Writers Union or Society for Technical Communications might have a deal). I incorporated as an LLC for some protection.

By: Tall Bill

Tall Bill — Tue, 04 Mar 2008 18:14:16 +0000

Trent; As HebsFarm stated above, thing really change when leaving a 9-5. YOu speak of money management, but you might be ready to step into Sub S, or LLC status, etc. Have a meeting with your professional as you make this change. Also, the stress of the commute and 8+ hours of being away from family really keep minds off of normal family chores – i.e: another dirty diaper once again at an inconvient time. Who’s going to recharge YOUR batteries? Will you be maintaining outside contacts for perspective on a regular basis. This screen I’m writing on is not true two way dialogue, something I try and do at least once a week away from home. A meeting over lunch, or even budgeting, meeting at a big name coffee shop who all sell drip & have a counter to adjust it to your satisfaction, works out at less than 1/2 of their normal called out fast paced big profit earners. I’m looking forward to this weeks event. Take Care & Don’t regret any hurdles.

By: escapee

escapee — Tue, 04 Mar 2008 16:50:53 +0000

I’d advise *against* paying quarterly if you are fairly disciplined with your finances. Here’s why: you can incorporate into an LLC, which is a pass-through entity (think of it as being a separate person). The LLC pays you just like any employee (your share of the distribution of profits) and you pay taxes on that amount on April 15th like everyone else.

The reason I advocate this is because if you put the money that you know you will have to pay into an *interest bearing account* YOU make the interest from this rather than the government. I never get an income tax refund- I always have to pay an income tax payment every year. And that is the way it should be.

Bottom line: If you are getting an income tax refund then someone else is making money off you!

By: GalinAZ

GalinAZ — Tue, 04 Mar 2008 15:52:21 +0000

Since you were laid off, you should apply for unemployment insurance – you contributed to the fund, that’s what it’s there for. It’ll provide a little bridge of funds until you get your own business going.

I also recommend keeping a time log. I’ve been doing one for 7 years since I left the corporate world and began consulting. Tracking the hours spent working helps you calculate the real $/Hr and determine if it’s worth the time investment.

By: Tony

Tony — Tue, 04 Mar 2008 15:22:08 +0000

PS: It really is about getting paid.

Don’t tolerate a bubba.

By: Kendra

Kendra — Tue, 04 Mar 2008 15:10:16 +0000

I also highly recommend seeking a CPA for tax advice. Unfortunately, again this year, I’ve seen quite a few new business owners handed a tax bill that they are unprepared for. Set up quarterly estimate payments (if you pay too much, you get it back…if you don’t pay in and you were supposed to, you’ll get a penalty). Look at the tax benefits of health insurance for self employed people. Keep your business and personal finances separate. Remember if your business needs money you can always give it money from your personal account. If you need money, make sure that you are drawing it correctly for the type of business entity that you set up. Some entities allow you to write yourself a paycheck (with Soc Sec, Medicare, and withholding tax deductions) but some don’t. Make sure that you’re doing it correctly. Good luck to all those who begin new business ventures this year!

By: acwang

acwang — Tue, 04 Mar 2008 14:50:19 +0000

what about health insurance for yourself and your family? Would be interested to know what options are available for self-employed.

good luck with your new career and hope it works out for you.

By: brief

brief — Tue, 04 Mar 2008 11:15:45 +0000

I’ve been a freelancer all my working life, and one of the things I do to stay sane is keep my monthly dues as low as possible. Anytime there’s a once-a-year payment option, I take it. That way I have more flexibility and don’t need to worry as much when a client pays me a few weeks later than they promised.

It also means not putting myself on any payment plan, ever. If I want something, I save up for it and only buy it when the money’s there. It’s better to put off the purchase and let the money you’ve amassed sit in the bank than get hit up with late charges because you miss a payment.

By: Peter

Peter — Tue, 04 Mar 2008 11:00:19 +0000

I’m self employed too. Two things: first, focus on getting regular income streams so you at least have a minimal regular income, and make the non regular income as high as you can (ie charge a lot if you’re consulting). Second: be careful, adsense income and such can easily plateau for a year or more even if you traffic grows. Good luck!