Being self-employed is awesome, and comes with a lot of advantages that people working “real” jobs don’t get. However, it also comes with its own challenges as well, particularly financial challenges. Knowing these challenges, and planning for how you will deal with them, is a must for anyone who’s considering becoming self-employed. The good news is that a little knowledge goes a long way, and overcoming these challenges isn’t as hard as you may think. Let’s go over five financial challenges that self-employed people face, and how to beat them.
1. Buying Your Own Equipment
When you work a normal job, all the equipment that you need to do it is provided for you in most cases. But, when you’re self-employed you’ll be buying all your equipment on your own. This could be anything from a new computer to word processing software, or even something like a lawnmower if you’re in the landscaping business. As you can imagine, the upfront costs for this can be a pain.
One way of dealing with this problem is self employed loans. This will allow you the money you need to purchase all the equipment you need to get your business started. Also, don’t forget that business expenses are tax-deductible, so use that to your advantage when tax time comes.
2. Paying Taxes
Speaking of taxes, unlike people who work normal jobs who get a tax refund at the beginning of each, you’ll be expected to pay taxes instead. You can also pay quarterly as well if you wish, but either way, you will have to pay your taxes.
The best way to overcome this challenge is to deduct as much as you can when you file your taxes. For example, you can deduct all of your office equipment that is used solely for your business, and even the cost of your office space itself.
3. Health Insurance
If you live in the US this is probably one of the biggest challenges you’ll face as someone who’s self-employed. While many people get their health insurance through their employer, you’ll be expected to get it on your own. This can leave you with limited options, many of which are overpriced.
The only real way to deal with these issues is to budget your income wisely and make health insurance a top priority. In a way, you should think of it as an expense, since you can’t really go without it, so make it one of the first things that you subtract that from your income when writing your budget.
4. Work Will Be Inconsistent
When you’re self-employed, you don’t get a steady income. Instead, it tends to come in waves: at some points, you get tons of work and make a lot of money, at other times you won’t get much at all, and it can be worrisome. This feast and famine cycle is just a fact of life when you’re self-employed, so get used to it.
Beating this challenge isn’t hard though. Just save up plenty of money when you’re getting lots of work. Sure, it can be tempting to go on a spending spree, but remember that a dry spell is always just around the corner, so save up.
Also, if you’re having trouble finding work and really need some extra cash to hold you over until the next job, self-employed loans can help. Just don’t become too reliant upon them, going into debt isn’t going to help you in the long run.
5. Retirement Accounts
Another thing that gets handled automatically when you work a normal job but not when you’re self-employed is your retirement savings. What this means is that you’re going to have to take it upon yourself to make sure that you have enough money in savings to last throughout your retirement because no one is going to do it for you.
Fortunately even as someone who is self-employed, you have several options. You can open an IRA (SEP, Simple, Traditional, or Roth), create a solo 401k, or get a defined benefits plan. This may sound complicated, and it can be, but there are services out there that can help you set it all up.
Be Smart About Self-Employment
How well being self-employed works out for you is in large part due to how well you plan on tackling the challenges that will come your way. If you stay smart and prepare for these challenges properly, then you can achieve your dream, and live the life of freedom that you’ve always wanted