Financial Planning, Saving, Work
May 26, 2022
During the pandemic, plenty of women decided to launch their own businesses. The number of women who used IncFile to set up their business (registering as an LLC for example) grew by 48%, which was more than double the increase in filings from men.
From this female entrepreneur to anyone recently launched, or considering launching into self-employment, I say: You go girl!
I want to share some important steps to make this move work financially.
Build up savings first.
Launching a business requires 110% of your attention and energy. You literally can't afford to be distracted by worrying about how you will pay your bills in the initial months as you build your business. Having savings that can cover at least one year of living expenses is my general advice. I would encourage would-be entrepreneurs to try and start with even a few more months of savings.
Set up a tax savings account.
When you are self-employed you are responsible for filing quarterly estimated taxes to the IRS, and to your state, if it levies an income tax. Your federal estimated tax payment includes both income tax and your tax for Social Security and Medicare. The Social Security and Medicare taxes are referred to as self-employment (SE) taxes. You can pay your federal estimated tax online through the IRS Direct Pay website. Your state will also have an online payment system.
Taxes trip up so many new entrepreneurs. It causes big headaches when they go to file their annual tax return and realize they owe a chunk of money and a late-payment penalty.
That's not going to be you.
You can find free online calculators to help you figure out your estimated quarterly tax payments. For the first year, I recommend using a calculator and plugging in what you think you will earn in a given quarter and then calculating what percentage that works out to. Let's say your estimated tax works out to be 20% of your income. My advice is to have a separate savings account at your bank, and every time you are paid, move 20% into it. Then, when your quarterly payment is due, you will have the money ready.
Push yourself to keep saving for retirement.
This is one of the biggest mistakes I see entrepreneurs make. They tell themselves they can wait a few years to focus on retirement and just focus on building their business right now.
That's just flat-out dangerous in my opinion. I want you to commit to saving at least 10% of your income. A Roth IRA is a great option if you expect $6,000 (or $7,000 if you are at least 50 years old) to be the maximum you will be able to save per year.
If you anticipate being able to save more, a SEP-IRA is worth researching. This is a special type of IRA for entrepreneurs that allows larger annual contributions based on your income. It's a great option if you will not have any employees.
Repeat after me: You are not on sale.
The biggest mistake you can make right out of the gate is to charge too little. My experience talking to female entrepreneurs is that many put themselves on sale by accepting a rate that they know is less than they deserve, just to get the business. I understand this may seem difficult, but it is so important to stand tall in your truth: Ask for what you are worth. If you don't respect your skills and expertise, you can't expect a client or customer to.
Credit & Debt, Saving, Investing, Retirement