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    15 Things I've Learned About Managing Money After Being Self-Employed For 3 Years

    It's like next-level adulting.

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    Hey everyone! My name is Evie and, like a true Capricorn, I actually enjoy working — but I also like to travel and NOT work.

    Me laughing on bridge
    Evie Carrick

    I can wake up at 5 a.m. and work like a madwoman (without coffee) if it means I can take a long weekend or a half-day on my birthday.

    The standard corporate 8-to-5 work day and 10 days of PTO always felt limiting to the life I wanted to live. That’s why I decided to start working for myself as a freelance writer and editor.

    Calendar of holidays

    I went from a hotel marketing job where I worked holidays and missed countless family gatherings, to a job with a fully remote media company that encouraged a flexible work schedule. This meant I could get in an early-morning run and work from an airplane (or from another country). When that company hit a serious speed bump and furloughed all their editors, I started working for myself.

    And while I love the freedom of being self-employed, when it comes to managing time, money, and clients, it can be more than a little tricky. Here’s what I’ve learned over the past few years:

    Universal Pictures / Via Giphy /

    Sometimes I feel like I’ve found the antidote to a life tied to a desk. And sometimes, it’s really, truly tough.

    1. Taxes are totally different. For starters, you have to pay self-employment tax.

    Nickelodeon / Via Giphy /

    Knowing you have to pay self-employment tax is Freelancer 101 — unless, of course, you’re totally oblivious, like I was. Here’s how it works: When you’re a regular employee, your Medicare and Social Security taxes are taken out of your paycheck by your company, who also pays half of these taxes on your behalf. But when you’re self-employed, if a client pays you $250 for a project, you get a $250 check — no taxes are taken out and no one helps you pay them. Painful.

    You have to put aside money so you can afford to pay the 15.3% self-employment tax (a tax consisting of Social Security and Medicare taxes) when the time comes.

    2. And if you don't set aside money for taxes throughout the year, you'll get hit with a giant tax bill — and you may or may not have the profits to pay it.

    Screenshot of TaxAct page showing self-employment tax calculation

    It's tough, but setting aside money throughout the year is the only way to avoid a large tax expense you can't afford to pay. After not putting aside any money for taxes my first year as a self-employed person (and paying for it come tax season), I now try to set aside 25% of what I earn throughout the year for taxes — even though the self-employment tax rate is 15.3%.

    This handy calculator from TaxAct can give you an exact dollar amount of the self-employment tax you’ll owe based on your income.

    3. You also have to pay your taxes quarterly.

    History of quarterly tax payments
    Evie Carrick

    Yes, you read that right. Rather than ignoring taxes till April, like most Americans, people who are self-employed are thinking about (and paying) taxes every three months. According to the IRS, if you work for yourself and expect to owe $1,000 or more in taxes, you should be paying your income and self-employment tax throughout the year.

    You can use Form 1040-ES to figure out your estimated quarterly taxes. Or, just use an accounting program that helps you track your income and deductions to determine your quarterly estimated payments. This is the route I prefer to follow; I use QuickBooks Self-Employed to track and pay my quarterly taxes.

    4. To make figuring out your taxes easy (well, easier), you should have a separate bank account and credit card for work.

    A photo of a wallet
    Evie Carrick

    This way, the money that comes in and the money you spend on work-related expenses (like client lunches, your computer, and any software you need to do your job) is easy to keep track of. I got the uber-fancy Chase Sapphire Reserve credit card (perfect for travel fanatics like me) and a business-specific bank account. Keeping my work money separate from my personal money makes bookkeeping easier and ensures my records are clean in case I ever get audited.

    5. You also have to keep track of the items you buy in order to do your job. It can end up becoming a tax benefit in disguise!

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    Here’s where that work credit card comes in. When you work for yourself, you’re responsible for buying all the things you need to do your job well. That could mean your computer, desk, filing cabinet, and even that box of paper clips. You can write them off as itemized deductions from your taxable income. Since I’m a writer and editor, I can write off my AP Stylebook subscription, lunches with interviewees, and trips I end up writing about.

    All this being said, when it comes time to file your taxes in April, the standard tax deduction may be more than the sum total of these itemized deductions. For 2020, the standard deduction is $12,400 for single people or $24,800 for married people filing jointly. That means, if you're filing your taxes as a single person and the sum of all your expenses for the year — office supplies, work meals, gas, etc. — is less than $12,400, you should take the standard deduction when preparing your taxes.

    6. You can even write off your home office or workspace as a deduction.

    Cat on the lap by a desk
    Evie Carrick

    If you work for yourself, chances are you're working from home, which means you can take a home office deduction. There's one caveat: The space must be used exclusively for conducting business on a regular basis and it must be your principal place of business.

    There are two ways to calculate your home office deduction. You can multiply the home office square footage by $5 (for a maximum deduction of up to $1,500). Or, you can calculate the percentage of your home used for business activities.

    Check out: 37 Useful Things Under $50 To Help Make Working From Home Better In 2021

    7. You might also consider asking a professional tax preparer about any additional business deductions you might qualify for.

    Nickelodeon / Via Giphy /

    Starting in 2018, the IRS started offering business owners (aka, "owners of sole proprietorships") a 20% tax break. This means you can deduct up to 20% of your qualified business income — so, if you earned $15,000 in 2020 (after writing off business expenses) you could get a $3,000 deduction.

    This may sound confusing, and maybe a bit overwhelming, but reaching out to a professional can help you clarify any questions and find other ways to save money on your business.

    8. Since tax law is always changing, it might be worth paying someone to do your taxes. This way, you won't miss a new deduction or make a newbie mistake.

    A paid invoice for filing a personal tax return
    Evie Carrick

    I actually used to like filing my taxes, but once I started working for myself, things got way too complicated. If you've got the time (or the know-how), you can still file yourself. But for me, it's worth it to pay a professional a few hundred dollars to do it right.

    9. Creating an invoice is a need-to-know skill; it's how you'll request payments from your clients.

    An automatic invoice template

    Unlike a regular job, where paychecks roll in like clockwork, when you're self-employed, getting paid for your work is dependent on you. You have to keep track of and send invoices for all the work you do.

    I found that having a universal invoicing template saves time — you just have to drop in the project details, payment, and update the person or company you're invoicing. Or, if you use Quickbooks, you can take advantage of their invoicing system.

    10. But if your clients forget to pay you, it's your responsibility to follow up and make sure you get what you're owed.

    Sample email for an unpaid invoice
    Evie Carrick

    Invoices get lost and mistakes happen. It's up to you to make sure you get paid — and receive the correct amount. I use Trello to organize the work I’ve done, the invoices I’ve sent (and their due date), and to track all my paid and unpaid invoices.

    11. When you're self-employed, you have to take a more hands-on approach to paying for your health insurance.

    Screenshot of health insurance enrollment page
    Connect for Health Colorado

    This is a big expense (and a major pain). Now that I'm no longer on a company-sponsored health insurance plan, I have select and pay for my own health insurance.

    The good news is that most self-employed people can deduct health insurance premiums they paid from their taxable income.

    12. And, it's extra important for you to be proactive about saving for retirement.

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    When you’re self-employed there is no company-sponsored 401(k) program or contribution match from your employer — you’re on your own. There are a few ways to put aside money so you don’t end up broke when you're 70, but I opted to set up a Roth IRA — a retirement account where you deposit and grow your after-tax money and make tax-free withdrawals. I set up automatic transfers to make my retirement contributions feel less painful (and to make sure I don’t forget to do them).

    Check out: The 10 Most-Googled Questions About 401(k) Plans, Answered By Financial Experts

    13. Keep in mind that your monthly income will fluctuate — and that's okay. You'll just need to be prepared for these instances.

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    Unlike a full-time salaried job, where you get paid a fixed amount no matter how busy you happen to be, when you work for yourself, your income is dependent on the amount of work you have, which is almost never stable. Some days, I only have to work a few hours; other days, I work 10–12 hours. While I have some clients who provide me with steady work, I’d say half of my clients are seasonal — meaning I’ll have nothing for a couple of months and then a ton of work.

    This ebb and flow can feel great when you have time to go on a (almost) work-free trip. But in order to avoid feeling completely stressed about money, you need to have some financial cushion — and if possible, some stable work that keeps you afloat during those quiet times.

    14. And, understand that you might lose a client from time to time — and that's okay.

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    Working for a company can provide some level of job security, but working for yourself is typically free of any sort of guarantee. When I first started out, I landed a dream client, then lost them out of nowhere when my editor was laid off. It was heartbreaking and a total ego blow, and I had to scramble to fill the income void. While losing a client can be upsetting, it also opens the doors for new clients (who may pay more or be easier to work with).

    15. Lastly, the more efficiently you work, the more money you can make.

    Notepad of to-dos
    Evie Carrick

    This is one of my favorite things about working for myself. You don’t have to log 40 hours a week or work 8-to-5; your only requirement is to get your work done. If you can focus and work efficiently, you can get your tasks done quickly. And the quicker you can do your work, the more money you can make (and the more time you have to yourself).

    If I’m getting paid $300 to write an article, I can either dawdle and take my time or I can sit down, focus on the task at hand, and get it done. If I do the former, it might take me all day, bringing down my “hourly rate” and my ability to do any other work that day. But if I can work quickly and efficiently, I might be able to get the assignment done in a few hours, giving me the rest of the day to either do more work (and make more money) or do something I enjoy.

    What's one thing you wish you knew before becoming self-employed? Let us know in the comments! You could be featured in an upcoming BuzzFeed Community post.

    If this sounds like music to your ears (and bank account), check out more of our personal finance posts.