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As long as I’ve known Shawn, he’s dreamt of being self-employed.
OK. It’s more accurate to say that he dreamt of telling his boss to “shove it” and spending every day at the beach, surfing and talking to girls.
But he figured being self-employed is the next best thing.
He could take his laptop down to the beach… duck out for a quick surf in between projects… and be his own boss.
Well, last year, that’s exactly what he did. And it was a disaster.
Eight months later he was back in the office, broke, and swearing he’d never leave again.
Where Did It All Go Wrong?
For Shawn, it started going wrong the moment he stepped out the office doors…
You see, Shawn’s dream of being self-employed was just that — a dream.
He never actually researched self-employment or the financial planning required to successfully strike out on his own.
The poor guy was doomed to fail from the beginning.
But make no mistake, I’m not saying self-employment is bad.
Far from it. I think self-employment is one of the best things a person can do. But I just don’t want you to follow in Shawn’s footsteps.
Today, I’m going to run down the biggest mistakes you can make when striking out on your own — and how to avoid them.
Pitfall #1: Unprepared for Peaks and Troughs
Some folks have a hard time adjusting to the sporadic income that comes with self-employment — especially when they’re used to a fixed monthly paycheck.
Depending on your line of work, your income when you’re self-employed can vary wildly from month to month. It’s up to you to smooth out the peaks and troughs to make sure you have enough money to pay the bills regardless.
How do you do that?
Simply work out your average monthly income. Any month your income exceeds this average, put the extra money into an overhead account. As funds in the overhead account build up, you’ll have a cushion from which to draw your monthly salary.
Pitfall #2: Taxes, Taxes, Taxes
Staying on top of your taxes is essential as a self-employed worker.
One of the biggest mistakes that people make is failing to set aside money for taxes and learning that they owe thousands of dollars they don’t have.
From here on out, you’re going to be making estimated tax payments on a quarterly basis.
To make sure you have enough set aside, stash 35–40% of everything you make for taxes. Business deductions should reduce the bill lower than that, but it’s better to be safe than sorry.
Bonus: In between quarters, stash your tax money in an interest-bearing savings account, and make your taxes pay you.
Pitfall #3: Not Keeping Accurate Records
Complete all of your paperwork on time, especially if you are billing customers.
Some folks will take several weeks to process invoices… and others will avoid paying for as long as possible.
Keep copies of all receipts for your taxes.
Pitfall #4: Going All-In Too Soon
The first year of self-employment as you work to establish your new business can be tough.
It’s a good idea to have a cushion of a few thousand dollars set aside before you leave your day job. This will ease the pressure and give you a little wiggle room in those first few months.
Another good idea is to seek out clients and establish your business before you fully quit your job. This might mean some late nights. But you’ll be able to leave your job knowing that you have work already lined up.
What about you? Have you plans to strike out on your own? Or maybe you’ve done so in the past. If so, I’d love to hear what you learned. You can email me with your plans, stories and ideas right here.
All the best,
Editor, Money & Crisis
Editor’s note: James Altucher is the king of self-employment. He’s started over 20 businesses, several of which he sold for millions of dollars. And he even self-published three books that went on to be best sellers.
Today, James is giving away FREE hardback copies of his book The Choose Yourself Guide to Wealth. Claim yours now and find out how James turned a $2,000 investment into $10 million windfall in just nine months…