Working for yourself is a powerful feeling. You get to pursue what you’re passionate about on your own time. You create your own schedule, choose your projects and determine your workload. For many, it’s the ultimate career goal.
But self-employment has its challenges. From lack of stability to pricey health insurance packages, there are many cons that dissuade people from following their dreams. Don’t let this happen to you. Here’s everything you need to know about working for yourself.
Since you’re not on any company’s payroll, you’re responsible for handling taxes on your own. As a business owner, you’re responsible for paying a self-employment tax, which is a combination of Social Security and Medicare taxes.
According to the IRS, the self-employment tax is 15.3%: 12.4% for Social Security and 2.9% for Medicare. In addition to paying your annual tax bill, you need to pay your estimated taxes every quarter.
You’ll use the following information to determine your quarterly estimated taxes:
Handling your taxes can feel overwhelming, but if you track your taxes year-round, you shouldn’t have many issues when filing.
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While accounting tools are helpful, you may also opt to work with a certified public accountant (CPA). Hiring a CPA will take the guesswork out of filing your taxes and ensure you don’t make any mistakes.
It’s also essential to make sure you’re setting aside enough money each month for your taxes. It’s a good idea to save 25 to 30% of your taxable income to pay your quarterly taxes. That may feel like a lot of money, but it’ll help you avoid having a huge tax bill at the end of the year.
Your full-time day job likely offered benefits like a 401(k) retirement plan and health insurance, and losing those perks might feel overwhelming. However, there are options for benefits coverage when you’re self-employed.
Here are some key coverage areas you should be contemplating.
If you had a 401(k) with your previous employer, you could roll those savings into an individual retirement account (IRA) pretty easily. The only drawback is that you won’t have an employer matching your contributions anymore.
Here are some of the best retirement savings options for self-employed individuals:
With self-employed 401(k) plans, you can’t have any full-time employees, but you can contract with freelancers or employ part-time employees who don’t work more than 1,000 hours a year in your business.
Buying their own health insurance is one of the biggest fears many people have about self-employment. But there are many health insurance plans geared toward self-employed individuals.
However, it may end up costing you more than an employer-sponsored plan. The best thing you can do is research all the available options and figure out the best fit for you.
The best place to start is by checking HealthCare.gov and seeing what options are available in the marketplace. The marketplace organizes plans by metal, so you know how expensive your coverage will be.
For instance, a Platinum plan is more costly but comes with a low deductible. A Bronze plan costs less upfront but has a very high deductible.
You can also look for plans through a private insurance provider, like UnitedHealthcare or Blue Cross Blue Shield. Or you can join a membership organization that offers a group plan.
When you’re your own employer, you might miss the stability you had when you were on a company’s payroll. However, self-employment isn’t that much riskier than a corporate job because if you work for a large company, you could still be laid off. Once you accept that there’s no true stability, you’ll be more confident in pursuing your passions.
But you can make it easier on yourself by ensuring you have enough work, a solid plan and income, and a decent amount of savings before leaping into self-employment. Organizing all the details ahead of time will prevent panic and ease feelings of uncertainty.
The best way to ensure you have a steady stream of work is by building your network. Let your family, friends and former colleagues know what you’re doing. You never know who is willing to send new business your way.
You should also come up with a sustainable marketing plan. A marketing plan will help you connect with potential customers and clients, and get the word out about your business.
The most important part of any effective marketing plan is consistency; no matter what plan you choose, stick to it for at least 90 days. This will give you time to see whether or not your plan is working.
When you work for yourself, it’s easy to take on too many responsibilities and gigs. Without even realizing it, you can end up working more hours than you did at your full-time job.
Make sure you’re taking weekends off (for the most part) and setting reasonable limits for the hours you work each week.
Work-life balance is crucial if you want to be self-employed. Take on only the projects that excite you, and don’t accept every offer you’re given. You know what you deserve, and if a client isn’t willing to give you that, find another.
Additionally, don’t work entirely from home. Your home is supposed to be your haven, and if you spend every second of work in your living room or at your kitchen table, it might soon become a place you associate with stress and labor.
Instead, drive to a coffee shop or co-working space to get your work done. That way, you’ll also be able to focus better without thinking about all the chores you need to do or the shows you want to watch.
The most important thing is to find a balance that works for you. Transitioning from a full-time gig to self-employment can be terrifying, but it’s worth it to be able to craft the career and lifestyle you want.
|You have greater income potential.||You may work long hours in the beginning.|
|You have a high level of control over your business.||It may be harder for you to take time off.|
|You can choose your clients and the type of work you do.||You may end up wearing a lot of different hats.|
If you’ve always dreamed of starting your own business, then self-employment may be the right path for you. It gives you an opportunity to do work you enjoy, and your income isn’t limited to a salary.
If you can develop a product or service that people enjoy and are willing to buy, there’s no limit to how much you can earn. However, it will take time to reach that point, and you may work very long hours initially.
Most business owners wear a lot of different hats, and it can be hard to take time off and temporarily walk away from your business. But if you’re willing to make the sacrifice, self-employment is an excellent opportunity to challenge yourself and find new opportunities.
Sammi Caramela contributed to the writing and research in this article.