4 Common Mistakes Made By The Self-Employed

5 Common Mistakes Made By The Self-EmployedI’ve been fully self-employed for almost a year now (side hustled for 3 years) and I have learned a lot over this time period.

No, I’m definitely not an expert but I do know a little bit about owning businesses and running them since that’s all I did when I had my day job as a business analyst.

As a quick summary, in my old day job some of my responsibilities included conducting interviews to learn more about a company and how they operated, analyzing any legal and business agreements, reviewing and/or compiling financial documents (including tax returns, financial reports, etc), and so on.

When I had this position, I saw some really amazing companies. I saw many companies where the owners completely started from scratch and built multi-million dollar companies which were extremely successful.

However, I also saw many, MANY companies that made some horrible mistakes. These companies operated at losses each and every year, and I just don’t know how they did it.

Even though I run a fairly simple business (all I need is a laptop and internet to work), I’m starting to understand more and more about what these business owners went through in order to get to where they currently are.

I’ve also made my own fair share of mistakes, and I know no one is perfect. Hopefully, you can avoid some mistakes though!

Below are four common mistakes made by the self-employed:

 

1. Not being organized.

This is a very common mistake made by the self-employed. I’m guilty of this one too.

I make this mistake all the time, but I am trying to improve. When you have your own business, you really need to work on being as organized as you possibly can.

You need to make sure to keep your personal and business finances separate, receipts organized, papers organized, and pretty much everything you use for when you do your taxes the following year need to be prepped and organized.

Keeping everything organized will help everything go much more smoothly when you eventually need the item. It’s easy to let each little thing slide and all of a sudden your disorganization will take over your life.

It might become impossible to find anything, and you might even lose important documents.

 

2. Thinking being self-employed will be easy.

Now, this one isn’t necessarily too common, but I do think it’s a common way that people who are NOT self-employed think.

I recently read an article about someone who quit their job and entered the self-employment world because they wanted to do something easier in life. Sadly, they found out the truth was the exact opposite.

Being self-employed isn’t a never-ending vacation. This is something too many people think. Just because you work for yourself and/or at home, it doesn’t mean that life is automatically easier.

You will need a plan for your business, research about how you will actually make an income, organize your finances, handle the legal side of owning a business, manage to not let your business takeover your life, provide services, sell products, find health insurance, save for retirement, and so on. Oh yeah, and don’t forget about taxes!

 

3. Not having an emergency fund.

I have seen too many people enter the self-employment life, only to have a few bad months and completely give up. I understand that running a business can be hard (see above), but I do think having an emergency fund can be a lifesaver in many situations.

Different people like to have a different amount in their emergency fund. I have a full year of expenses just in case everything completely tanks, or if something major happens to either of us or our home. Keep in mind that we do have a $12,000 deductible before we can actually use our health insurance, so we keep our emergency fund extra inflated with a year’s worth of expenses because of that as well.

An emergency fund can really help if you have a bad month, if something goes wrong with your business plan, or if you have some major expenses coming up.

Instead of completely giving up on your dream, your emergency fund can help you power through any bad months so that you don’t have to quit (unless you truly want to, of course).

 

4. Spending a crazy amount of money.

Luckily, my business is very cheap to run. I don’t need much in order to make an income. All I really need is my laptop and internet. Everything else I pay for are really just little luxuries to make everything a little bit easier.

When I first started my hustles, I ran it much more cheaply than I run it now. I wanted to save as much money as I possibly could.

This is not how everyone runs their business though. I have seen some business owners start their business by spending TOO much money on items that they probably do not need. Yes, some items are a need, but others can probably wait a little bit until you know you have a viable business plan.

Also, some spend a lot of money on their business just so they can write the expenses off on their tax return. Let me say this, just because you get to write it off it does not make the item free! You still have to pay for the item.

 

What mistakes have you seen or made?

 

$14,937 in July – My Highest Income Month

$14,937 in July - My Highest Income Month

It’s that time of the month again. It’s time to look at my monthly income report and track my progress over the past month.

This all started out as my “extra income” report because before October of 2013, I still had my day job. In those extra income reports, I included all income that I made except for income from my day job.

However, in September of 2013, I turned in my notice at my day job as a financial analyst, and my last official work day was in October of 2013. Now, my income reports consist of the main way that I make an income each month, which is through my freelancing business.

I publish my income reports each month for many reasons.

The main reason why I started side hustling is because I was reading other bloggers’ (Smart Passive Income, Budgeting In The Fun Stuff, Newlyweds on a Budget) monthly income reports and they had me interested and motivated.

Before I started blogging, I knew nothing about side hustling and making money online. I didn’t think side hustlers were worth the time, and I thought the main way to increase your income was through your day job.

Boy, was I wrong!

If it weren’t for others posting their monthly online income reports, I don’t know if I would have ever attempted side hustling.

Also, I like to publish my income reports each month because it’s a way for me to look back, learn from my mistakes and see what I need to change or improve the following month. Just sitting here and typing up this income report is a great way to keep in touch with my business goals. It also gives me motivation because if I can see that nothing has changed in a few months I know what I need to start working on.

I know I say this every month, but it is the truth. Life is just so great now that I am doing what I want to do. I look forward to each and every day and it’s a wonderful thing.

 

How was July?

July was my best income month ever. I was very surprised by this because usually the summer months are supposed to be slower in the online freelancing world.

July was extremely busy the first week and the last two weeks. The middle of the month was extremely slow and I had almost no work come in when I was on my cruise, which worked out well but it always feels odd when I don’t work.

In July of 2014, I made $16,237 in business income, before expenses. It was another GREAT month!

 

$14,937 in July - My Highest Income Month

This is for the month of July and before fees and expenses (fees and expenses that lower the amount above total around $1,300, which includes VAs/staff writers for my other websites, technical assistance on my websites, PayPal fees, etc.) being taken out.

After all expenses and fees, I made approximately $14,937. In the amount above, I do not include the amount that I bring in to websites that I provide services to, I only include the amounts that are my actual earnings from my services. So, if a website I manage makes an income of $2,000, I only include my payment for my services- not the full $2,000.

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Confession: I Let Money Control My Life

Confession: I Let Money Control My LifeI’ve talked about not letting money control your life before, and I recently came across the topic again.

The other day someone told me it’s impossible for a personal finance blogger to not worry about money. They were saying I should be telling everyone that being controlled by money is actually a good thing.

I have to disagree though.

I don’t think that in order to be in charge of your financial well-being that you have to bow down to money and let it completely control your life.

Even though I say that though, I still let money control my life a little bit.

I’m not as bad as I used to be, but I still let money control my life more than I should.

Here are some of the things I constantly think about: 

  • I worry about bad business months. Yes, I know I publish my monthly income reports and I am doing well, but as a freelancer I still have the occasional week or two almost every month where everything seems completely dead. Also, sometimes I think about how life is almost TOO good to be true, and I wonder when it will all come falling down on me. I know, I am such a Debbie Downer!
  • My emergency fund is too large. Yes, that IS possible. Our emergency fund is around a full year of expenses right now. I am weird and I just don’t feel comfortable with it being any smaller. This means that I’m not investing this money more aggressively even though I am young. I am losing out on money and I don’t know if this is something I can ever change.
  • Home repairs. I sometimes act like my home is going to collapse. I don’t know why I’m like this. We’ve never really had anything major happen with our home, but whenever the smallest thing happens, I tend to worry that it’s going to cost $10,000 to fix. In reality, there would have to be something significantly broken in order for it to cost that amount!
  • I sometimes compare myself to others. When I say “compare,” I’m talking about comparing how I am financially doing to how others are doing. I read a lot of personal finance blogs and it just seems like all of these people are professional savers, whereas I’m just nowhere near as good as they are.

 

Here are some of the things to think about if money is controlling your life.

 

Money is just money.

This is something I always have to tell myself when I start having a money control freak out. Money is JUST money, and nothing else. Money doesn’t lead to happiness. Sure, it can make life easier sometimes, but life isn’t all about it.

Life will go on and freaking out about money doesn’t change the situation you are in. You need to actively change your life.

For me, I would always calculate our budget. I’m talking like every single day. I would spend hours upon hours trying to figure out our budget, financial goals and more. And, if I wasn’t on track it would upset me.

However, living with regret and being upset doesn’t change your situation!

If you want to see change, you need to actually do something.

 

I need to stop comparing myself.

I’m not talking about comparing myself in a keeping up with the joneses way. I’m talking about comparing myself to others who may be doing better financially.

For example, I came across an article recently that stated that the average person my age should have like $200,000 saved for retirement already. I thought that amount was absolutely insane, and I felt upset that I’m not at that level. Then, I started reading the comments and others who were even younger than me were saying that $200K seemed low.

HA, who are these people?

I then all of a sudden wanted to start saving even more. Yes, I make a decent income, but all of that is before taxes (and taxes take out a significant chunk). For me to have been at the level that these people were talking about, I would have had to take some drastic measures by now.

 

Does money dominate your life? In what ways? Are you trying to change that?

 

Image via Flickr by TaxCredits.net