When you work for yourself, you join millions of other business owners hoping to make their dreams come true. However, navigating the murky waters of freelancing can be difficult, especially during the early stages.
Although there are no guarantees in business, there are some strategies that can increase your chances of success, especially financially.
Here are some mistakes to avoid as a self-employed person.
Failure to delegate or prioritize
Self-employed people often take on a dual role in their business during the early stages due to budget constraints. However, trying to do it all on your own might be a mistake, said Ron Brown, owner of Girl CEO and Herlistic in Washington, D.C.
“We have to understand that we go fast alone, but we go far as a team,” she said. For people who feel they can't afford to delegate, Brown advises keeping your expenses low until you can do so.
If you decide to delegate, it's important that you spend your money in ways that help your business grow. To do this, people should consider focusing on business processes and systems rather than just aesthetics, Brown said. Doing this effectively often requires prioritization.
“In the beginning, people always focus on appearance,” she said. “But that's not what really creates income in the business.”
Brown suggested prioritizing accountants and accountants, creating an automation system, or hiring someone to attract potential clients. Also keep in mind that you can usually deduct the cost of contract labor from your business taxes.
Not saving for retirement
Saving for retirement as an entrepreneur can easily fall to the bottom of your list of priorities. This is a common mistake people who are self-employed make, said Preston Cherry, a certified financial planner in Green Bay, Wisconsin. And while it may be smart to reinvest in your business, it can be equally important to create an emergency fund of three to six people. Months of expenses and investing in your retirement savings.
Self-employed people have multiple retirement savings accounts to choose from, including an IRA or a solo 401(k), Cherry said.
“Not only can you be a business owner saving for your retirement, but you can also deduct contributions [for] “Tax planning, too,” Cherry said.
Contributions to traditional solo 401(k) and traditional SIMPLE IRAs can provide tax advantages such as lowering your taxable income and enabling your investments to grow tax deferred. This means your tax bill is deferred until you withdraw the money in retirement.
SEP IRAs are designed for self-employed people or small businesses with few or no employees and have similar characteristics.
Spending money on courses you don't take
As a new entrepreneur, you may want to enhance your knowledge to make your business more profitable. This may mean spending money on courses or training, which can be expensive. Although investing in yourself can be beneficial, you will not get a return on your investment if you do not attend training courses and apply knowledge.
“Make sure you are fully committed and committed to actually doing the work and sitting down and putting in the time before you invest in any course or class,” Brown said.
Brown also recommended doing your homework before investing in a course, especially one on social media. You can do this by looking beyond good content and ensuring that the person you are purchasing courses from has a proven track record of delivering results.
“For me, when I look for mentorship or I look for people to coach me, I look at the personal success they are having in the field I am looking to grow in,” she said.
Does not take into account health care costs
Health care can be a concern for self-employed people, especially when they don't have support from an employer. A health savings account is one way to ease the financial burden as there are many tax advantages.
“There is no ingress tax,” Cherry said. “There is no while-in tax, and there is no exit-tax.”
With HSAs, contributions are made pre-tax, interest grows tax-free, and qualified withdrawals are tax-free. In 2024, individuals can contribute up to $4,150, while families can contribute up to $8,300.
You must have a high-deductible health care plan to be eligible to open an HSA as a self-employed person. Another option to make health care more affordable is to take the self-employed health insurance discount if you qualify.
There is no clear 'cause'
Entrepreneurship can be a way to make more money or realize your dreams, but it can also become a money pit. That's why it's important to have a clear “why,” Cherry said. Having a clear goal can also help you know when to continue overcoming difficulties and when to stop.
“Entrepreneurship isn't for everyone. It's not meant to be. It's not the only path to wealth.”
Ayoola writes for the personal finance website NerdWallet. This article was distributed by The Associated Press.
