4 personal financial decisions you need to make when working for yourself
So you’re out on your own, no boss to worry about, just answering to yourself, woot woot!
Working for yourself comes with a heck of a lot of freedom and power. But what also comes with power?
“With great power comes great responsibility,” said Ben Parker from Spiderman so wisely.
Now that you’re out on your own, you my friend are the one who has to get your financial ducks in a row, because there’s no company saving for your retirement, taxes and health care for you!
I know the feeling sitting there thinking "… wait, but what do I even need to be doing?! What things do I need to sort out?”
So today I’d like to share some financial-related things you’ll need to get straight when working for yourself.
Now, I don’t want this post to discourage you. Yeah, these things are annoying to sort out, but you don’t need to have them all done from day 1. I’ll be honest, it was a years-long process until I got all of these things sorted after I started working for myself, so if you’re sitting there RN thinking “… eff, I haven’t done any of these yet!” don’t stress. You’ll get there!
One foot in front of the other, right?!
My suggestion? Set yourself one to figure out per quarter, and you’ll get ‘em done eventually.
Decision 1: Decide on a personal budget, how much to pay yourself & how frequently
The first thing you’ve gotta do is create a budget! Yes, my friend, ballin’ on a budget is really the way to go to make sure you don’t go crazy overboard financially and actually put your money to work in the way you want it to.
I don’t want a budget here to mean ‘restraining.’ I love the way YNAB looks at budgets. A budget to them is assigning every dollar a job.
You can assign those dollars to whatever you want (and if you work for yourself, you can give yourself as many dollars as your business profit allows!)
For example, just because I have a budget, doesn’t mean I don’t spend on the good things in life. Love to travel like me? Awesome, assign LOTS of dollars to that job!
(I set aside twice the budget to travel that I do to my rent. Until I buy a home, I personally don’t care about living in the fanciest apartment, and seeing that I spend months of the year traveling, and therefore not in my apartment, I don’t feel guilty for spending a ton on rent and then not actually being home for months.)
So yeah, budgeting to me just means deciding where your money is going, not trying to live on peanuts.
But in order to make that budget, you’ve gotta know how much your life actually costs you and that’ll help you figure out how much to pay yourself.
So again, first things first, make yourself a budget. Get down all the necessities.
I set a budget for each of the following:
Life (“fun money”)
N26 (my baller bank)
You might also want to budget for debt repayment or any other costs you have.
I also set budgets for savings:
Retirement (we’ll talk about this more in a minute!)
House down payment
I’ll be honest, when I started, I was paying myself whatever I could. Once the business started to easily cover my costs, I added in the not-so-essential-but-nice things to my budget (Netflix, outfit shopping, yoga/fitness, vacations, house down payment, etc.).
Okay so once you have your total number of what you need for all of those bits of the budget, that’s becomes your amount to pay yourself.
Then you’ve got to decide how you want to pay yourself. Every 2 weeks? Once a month? Some other format? You decide!
Then make yourself a task in your calendar/planning system to remind yourself to pay yourself.
Decision 1 down! That one was fun right?!
Decision 2: Health insurance
When you work for yourself, and you no longer have a health insurance plan through your work, you’ll need to get searching for a different good option. I know that most of y’all reading are in the US, but I’m afraid to say I don’t have a ton of experience with the US health care system.
The obvious first place to look is the marketplace, and if you’re not finding what you want there, it might be worth posting in some FB groups with other self-employed people to figure out what plans they have.
In the off chance that someone reading this is also an expat in Germany and is curious to know what I did, I got a private health insurance plan with Debeka.
I started on public health insurance here which costs 15% of your income, regardless of health history.
I was on that for a couple months, but then when my income started increasing and my health insurance cost began increasing, increasing, increasing to €750 a month (and showed no signs of slowing down with the price increase) I hopped ship to private insurance. Being Canadian and being used to spending $0 on health insurance all her life, €750 a month was an unbelievableeee amount to pay.
Here, private insurance is calculated based on how much of a risk you are, not how much money you make. So being a healthy, young person who earns pretty well, I moved over to private insurance as quickly as I could once the business really started taking off.
The other massive benefit of private health insurance with Debeka is that it covers me world-wide, so I don’t need to be taking out travel health insurance every time I leave the country, which is super frequently and would quickly add up.
Anyways, which health insurance option you choose is going to depend heavily on where you live, the options in your country, and maybe how much you travel too.
Bottom line, it’s time to do some research and decide on a health insurance plan!
Decision 3: Your retirement savings game plan
At a job, most people are pretty hands-off with their retirement savings. They take whatever 401k plan is handed to them and then turn their brain off.
And I’ll be honest, I think being hands-off and letting someone else make decisions on this is really not a fab idea, so you’re at a real advantage at having to think about this one yourself!
I think it’s a massive blessing to be able to make your retirement investment decisions for yourself, and not be tied into some company plan… or country plan for that matter.
I’m superrr thankful I don’t need to pay into Germany’s retirement system.
Why? Because apparently they manage it super inefficiently (typical government), the immense fees of the plan eat away at any interest actually earned, and the country didn’t strategize well long-term, so all the baby boomers will get paid out nicely, but by the time I as a millennial go to retire, the system isn’t predicted to be in a great place.
And I have a funny feeling that a lot of countries have made this blunder. So even if you’re not in Germany, you might really benefit from not just counting on your country’s retirement system.
Saving and investing for retirement is not a quick and easy topic, so it’s something I highly recommend reading up about.
Yeah there’s the saying ‘save 10%’ but that doesn’t apply in all situations. If you’re only starting to save for retirement at 40, you’re gonna need to save more than 10%.
And then there’s the whole ‘how do I invest my money’ question, which is a biggie in and of itself.
Now a moment of encouragement for you: I promise, the hardest part is educating yourself on this and then setting up your retirement game plan. Basically, the hardest part is the part you’re at right now.
Once you’ve set the thing up, it takes me personally all of 2 minutes a month to keep up with my retirement savings and investment plan!
I don’t keep track of the stock market, pick stocks, or do any other time-intensive and complicated investment strategy, yet my retirement savings is already growing well!
So first, get reading on this topic so you know both how much to save and how to invest it.
(Just saving without the investing won’t work, and well … you can’t really invest until you’ve saved money to do so - so you’ve really got to do BOTH.)
Here’s a few recommended reads:
The Index Card by Helaine Olen and Harold Pollack
The Little Book of Common Sense Investing by John Bogle
(If you’re traveling or living abroad while working for yourself) Millionaire Expat: How To Build Wealth Living Overseas by Andrew Hallam
(If you’re Canadian) Never Too Late by Gail Vaz-Oxlade
(Those book links are all affiliate links btw!)
Once you pick how much you’ll be saving, the next step is to invest your money wisely.
There’s about a zillion options on investing. I started by buying the lowest cost index funds I could find. (Read The Little Book of Common Sense Investing for why.)
Now if you’re anything like me, you’ll finish off those books, know exactly how much you need to be saving each month and feel stoked to buy your first investment, then you’ll sit there and think … “How do I actually buy an investment?”
Basically it involves setting up a brokerage account, figuring out what the heck all the index funds names mean and then placing an order on the fund you want to buy.
It’s definitely confusing the first time you do it, but again, do it once and then its 2 minutes a month in the future.
If you want me to talk about how to actually buy an investment in the future post, do leave me a comment and I’ll put it on my list of blogs to write!
Decision 4: Get disability insurance
Apparently disability insurance is a thing… Who knew? (Not me 6 months ago, that’s who.)
What’s our #1 asset in our business?
(If you just said ‘email list’ you’re a smart cookies!) Nah but in all seriousness, your #1 asset is yourself, followed by your email list, haha.
And what happens if you are disabled for life? That’s going to be a real issue for your financial future.
The way my financial advisor explained it to me was like so, you can save all the money you want, invest it super wisely, but if you can’t work anymore, the best savings and investments won’t save you.
So that’s where disability insurance comes in. It steps in in the situation where you can’t work anymore.
So if you’re like me 6 months ago and had no idea this was a thing, go ahead and add ‘decide on and get a disability insurance’ to your to do list.
And then pat yourself on the back for being a super responsible person who is killin’ the whole ‘adulting’ thing!