The following is a guest post by Deidre Lin. Deidre is an author, artist, advocate of Healthy Living and owner of TransFormX, a blog & website focusing on Healthy Living for Body, Mind and Spirit in the middle of Chaos.
I recently replied to a Squirrelers post relating to how time is money and how long it takes to work to buy an item. It got me thinking about the different ways in which this situation impacts people and how being self-employed dictates most, if not all, of my spending habits.
I’ve been self-employed for almost 2 decades now, though not in the same profession. Being self-employed certainly has advantages and of course has its downside too. We all know that everything can’t be perfect all the time. Perfect or not, being self-employed changes one’s view on budgeting, time and spending.
Consider that if you are self-employed you must not only bring in the work (marketing) you will also be responsible for the billing of invoices and then collecting the accounts receivables and all of these activities take time out of the day. No, most clients will not pay up right away and usually follow the standard ‘net 30 days’ rule. If you are lucky you will have a few on a ‘cash’ basis and be able to collect within a couple of weeks. Others will be in arrears 90+ days!
As you can see this impacts budgetary and spending concerns immediately and the question then becomes; how does one handle this on a daily basis? Fixed expenses are handled one way and variable expenses are handled differently when budgeting for the self-employed situation. As with any budgeting endeavor, first one has to get a good idea of what the fixed and variable expenses are each month. Only then can you realistically plan your budget. Of course there are many other expenses that are involved with being self-employed, including taxes; but the following is to illustrate how different the budgetary concerns are.
The following are my tips for budgeting some self-employed fixed and variable expenses:
1. Insurance premiums – we all have insurance premiums no matter what our employment situation is.
a) Insurance premiums are categorized as fixed expenses because we are pretty much locked into this expenditure whether we like it or not.
b) Budget and pay insurance in bulk – meaning either 6 month or 12 month blocks. Schedule insurance renewals to come due during the busiest time of year for so that the incoming $$ is higher and more frequent.
c) Most insurance carriers offer a pretty good discount for paying 6 month or 12 month blocks – make sure to check this out.
2. Rent/Mortgage – we all have our rent or mortgage to pay no matter what our employment situation is. When renting, if possible, base the lease on where you are working (relating to volume of work in that area) and plan accordingly for the beginning and ending of the lease term to coincide with incoming monies.
3. Vehicle Payment – Obviously this is a fixed long-term expense even if the vehicle is leased. Most lenders will try and work with you on having the payment coincide for whatever day during the month is necessary. Again, it may be prudent to schedule the payment for the middle of the month to ensure that your month-end accounts receivable has been received and processed.
4. Variable expenses such as food, utilities, cell phone and internet. These are variable expenses and some are more important than others.
a) These are the easiest expenses to schedule during the month and can be paid whenever there is an opportunity to do so – before the date due.
b) Another option is to set them all up as an automatic payment in the middle of the month like the vehicle payment.
5. Miscellaneous expenses that occur. When self-employed, one must be prepared for the unexpected expenses that could ruin your monthly budget. The best way to handle this is to set aside a specific amount for this eventuality and do not dip into it for any other expenses. Similar to an emergency account.
6. Vacations…Taking a vacation when self-employed is an interesting endeavor and is worse than a variable expense J Consider that if one is not working and billing clients daily – this directly translates to next month’s budget. If one takes off 2 weeks to go on vacation you can quickly see the effects of the interruption in cash flow, if not sooner than later. Yes, the vacation may be paid for in cash but the additional ‘cost ‘of your time must be factored in. Let’s say in a given work week ‘Tom’ bills out 4,000 in revenue (hmmm pretty nice week! Have any openings Tom?). He saves up for a vacation that costs 5,000 and he will be gone for 2 weeks. If he sticks to his initial 5,000 budgeted amount (and who really does on vacation?) he will have spent 13,000 when the 2 missed work weeks are factored in!!! Wow, hope the vacation was once in a lifetime “Tom”!
Now, as we all know it’s nice to be the chief cook and bottle washer. Personally, I would have it no other way and in many ways I appreciate the things I can but even more! Now, where did that Tom guy go? I wanted to do a bit of networking…