4 things you need to know
One common dream for many people is to be their own boss. Self-employment holds an enormous appeal because it puts you in the driver’s seat for work hours, clients, and more. However, while it’s easy to focus on the positives of self-employment, it’s essential to look at the reality as well. Here are four things you need to know before quitting your job and trying to make it on your own.
1. Your taxes will look different
Taxes are never easy, but self-employment will be a game changer in how and when you file. Many self-employed people move to a quarterly tax schedule. This means you’ll pay throughout the year and need to understand the differences of being an employee versus being self-employed. You’ll no longer receive W-2s but will have to keep track of your own income instead.
An accountant can be a huge help when you’re self-employed. They’ll know what documentation you’ll need, have resources for you to use, and let you know when things are due. If you can’t afford one, do some research to see what you’re responsible for. Utilize all the information available. For example, the IRS has a Self-Employed Individuals Tax Center.
2. You’ll have to budget for feast and famine
Typically, paychecks are regular and steady when you work for someone else, especially in a mid- to large-sized business. When you work for yourself, things can feel like they’re feast or famine. One month you may have numerous clients and/or sales, and another month you may barely scrape by. If you’ve always budgeted for a steady paycheck, you’ll need to transition to a broader budget, one that doesn’t have you spending money just because you have it.
It takes a few years to see a rhythm or pattern when you’re self-employed or reach a level of consistency; create a budget that addresses your annual expenses, and allows you to cover sparse months with income from robust months. Some key strategies include:
- Know your baseline or bare-bones budget—basically what you have to pay for each month
- Calculate all other potential expenses above your baseline
- Create an emergency fund—and continue to fund it throughout the year
- Try to work a month ahead budget-wise
Are you a person who has to be told to clean your house, or does someone have to nag at you to do it? It’s essential to understand if you have the motivation and drive to do what needs to be done, even if it doesn’t always bring in income. Another characteristic that’s crucial is organization. You must be able to create your own structure and not get sidetracked. Some attributes of successful self-employed people are:
- Persistence
- Tolerance for risk
- Decisiveness
- Positivity
- Focus
Self-employment is not for someone who needs to be told what to do on a regular basis. Instead, it’s an excellent choice for those who jump in with a clear picture of what needs to be done.
4. Self-Employment is incredibly satisfying
The good news is those who are successful at being self-employed love it. You’ll likely work hard, but it’s an incredibly gratifying endeavor. At the end of the day, you’ll know that the income you made is a direct result of your hard work.
Equal Housing Lender