Lesson 9: Conclusion – Napkin Finance

Lesson 9: Conclusion

By now, you might be feeling overwhelmed by all the financial elements of working for yourself. After all, no one ever tells you that self-employment effectively means starting a business even if you just want to freelance.

The thing is, you don’t have to master all of these areas in a day. Start with the basics, such as building a savings account, landing clients, and staying on top of your tax obligations. Then you can grow from there.

Key takeaways:

  1. Self-motivation and discipline are essential to succeeding as your own boss.
  2. It’s a good idea to have a fully funded emergency savings account before you strike out on your own.
  3. You should create a budget for your business expenses just as you do for your personal expenses to make sure you’re bringing in more than you’re spending.
  4. Although it can be simpler to work as an individual contractor or a sole proprietor, there can be tax advantages to creating an S Corporation or LLC.
  5. You face a much different tax situation as a self-employed person than you do as an employee, including paying higher taxes overall but also taking more deductions.
  6. You’ll need to pay quarterly estimated taxes both at the federal level and to your state treasury. Make sure to set aside money for these payments regularly.
  7. It’s important to keep saving for retirement even when you don’t have access to an employer-sponsored plan. Consider whether a traditional IRA, Roth IRA, SEP IRA, or Solo 401(k) is the best account type for you.
  8. One day your business may face unexpected hurdles, such as being sued by a client or losing business during a recession. That’s why it’s important to make sure you have strong personal and professional safety nets in place.

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References

  1. https://www.upwork.com/press/2019/10/03/freelancing-in-america-2019/
  2. https://www.cnbc.com/2019/10/03/skilled-freelancers-earn-more-per-hour-than-70percent-of-workers-in-us.html#:~:text=Among%20the%20study’s%20findings%3A%20While,in%20the%20overall%20U.S.%20economy.
  3. https://www.cnbc.com/2018/12/19/a-llama-a-skull-and-a-rolex-six-of-the-weirdest-business-expenses.html
  4. https://www.paypal.com/en/webapps/mpp/paypal-fees#:~:text=PayPal%20fees%20are%20always%20fair,2.9%25%20%2B%20%240.30%20per%20transaction.
  5. https://www.irs.gov/forms-pubs/about-schedule-c-form-1040
  6. https://www.taxpolicycenter.org/taxvox/treasury-left-door-open-20-percent-tax-deduction-pass-through-businesses
  7. https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes#:~:text=The%20self%2Demployment%20tax%20rate,for%20Medicare%20(hospital%20insurance).&text=However%2C%20you%20must%20pay%20the,all%20of%20your%20net%20earnings.
  8. https://smallbusiness.chron.com/individual-vs-sole-proprietorship-business-61077.html
  9. https://www.thebalancesmb.com/sole-proprietor-vs-independent-contractor-398614
  10. https://www.investopedia.com/terms/s/subchapters.asp#:~:text=An%20S%20corporation%2C%20also%20known,being%20taxed%20as%20a%20partnership.
  11. https://www.nolo.com/legal-encyclopedia/why-you-might-choose-s-corp-taxation-your-llc.html
  12. https://www.investopedia.com/terms/n/normal-retirement-age-nra.asp#:~:text=In%20the%20U.S.%2C%20full%20retirement,and%2067%20years%20of%20age.
  13. https://www.ssa.gov/benefits/retirement/planner/agereduction.html
  14. https://www.thebalance.com/how-to-calculate-your-retirement-needs-4061547#:~:text=Here’s%20a%20broad%20rule%20of,every%20year%20to%20live%20on.
  15. https://www.usa.gov/personal-insurance
  16. https://www.progressivecommercial.com/business-insurance/general-liability-insurance/
  17. https://www.msn.com/en-au/entertainment/gallery/celebrities-who-insured-their-body-parts/ss-BBeQonq?viewall=true#image=1
  18. https://extratv.com/2014/11/13/how-much-is-kim-kardashians-butt-worth/
  19. https://www.mybanktracker.com/credit-cards/faq/business-credit-card-vs-debit-card-305065
  20. https://www.creditcards.com/credit-card-news/pros-cons-business-card-personal-use-1269/
  21. https://www.valuepenguin.com/business-credit-scores-what-are-they-how-do-they-work

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