6 Ways I Set Up My Finances For Self-Employment

I know many of you are curious about how my finances will be impacted by my jump to self-employment next week — and no wonder, because it’s going to be a pretty BIG impact!

For the past 4 years, I’ve always earned two incomes, and my website and freelancing always came second to my full-time income. And no wonder: it’s half the size. I’ve never earned more than $35,000 in one year online… but I’ve also never devoted full-time hours to my online endeavors. I’m hoping if I can do 40 hours a week instead of 15, that the money will follow suit. In the meantime, I’ll be living lean. Below are the six ways I set up my finances to take this leap!

1. My essential monthly expenses are super low

My husband and I each contribute $2,000 per month to our joint accounts. Of this, $1,800 goes into the joint chequing account and $200 goes into our joint savings account. All of our essential bills are paid for with the joint chequing account: rent, utilities, cellphones, gym memberships, car insurance, groceries, and so on. The savings account serves as both a buffer account if we have a spendy month, and saving for big purchases.

Based on these numbers, I only need to earn a net income of $24,000 per year ($30,000 gross) in order to meet my share of all our financial obligations. This gives me the freedom to bootstrap it on a minimal salary as an entrepreneur for months without dramatically changing our lifestyle. I might have to stay out of Aritzia, but I certainly won’t be struggling to pay my bills.

2. I curated streams of guaranteed income

I make most of my online income from sales of my Master Class Money investing program, but how many courses I’m going to sell in a week or a month is unpredictable. For this reason, especially as I’m getting started full-time self-employed, I opted to find streams of guaranteed income before I take the leap.

I have no intentions of ever becoming a full-time freelance writer, but I can’t deny that a handful of regular, monthly writing opportunities are essential to easing any anxiety I have about about becoming self-employed. I will continue to write for RateHub and Society of Grown-ups, and then adding two additional major outlets in the New Year. These put a regular paycheque in my bank account each month, which means I don’t need to rely entirely on variable income.

3. My online business has been profitable for more than 4 years

As a consultant to early-stage start-ups, I watched entrepreneurs gamble time and money on their new businesses all the time. Loads of money and loads of time, actually. It was usually hundreds of thousands of dollars and years of their life — only to never see their idea become profitable. Starting is hard. It’s expensive and painful and very few actually make it through. But it’s important to remember that I’m not starting.

I’ve been making money online since 2012. At first, it was only a few hundred dollars each month, but recently it’s been catching up to my full-time income offline. I’m not asking, “will this make money?” — I know it will, it already has. And what many forget: I’ve done it before. From September 2013 until May 2014 I supported myself through the first year of my MBA entirely with my online income. Now is really just a second chance to do so more intelligently.

4. I seeded my long-term savings goals ages ago, and passive income keeps them growing

Being smart with my money in my 20’s has afforded me the luxury of not panicking to make up for lost time in my 30’s. Over the past 5 years, I’ve been able to amass tens of thousands of dollars in savings accounts and the stock market. I have over $25,000 set aside for retirement, I have over $5,000 in my Emergency Fund, and so on. In other words, I have a dramatic headstart on all the things you’re “supposed to do” when it comes to personal finance.

Even if I take the next 6 months off from contributing to these accounts, they will still grow with interest and dividends. I always reinvest my dividends into new stocks and ETFs, which creates even more passive income the following month or quarter. As a result, my net worth is growing each month without me having to lift a finger (well, so long as the stock market stays up). Now, this is not the same as it growing it with regular savings contributions, but it is a far cry from stagnation or depletion.

5. I invested in the essentials before taking the leap

There were some must-haves on my to-do list before I chose to leave my job. Or rather, the things I wanted to buy for the business before I could start paying myself. One of these was a new 27″ iMac. After more than 3 years typing on the tiniest Macbook Air that had no more disk space left and was running pretty slow, I was aching for a new computer. I bought my dream machine in September for $2,500.

The other thing I desperately wanted were some sales skills. Despite getting a graduate business education, I don’t consider myself very good at “selling”. If I’m going to sustain my livelihood by selling myself and my products, I needed to learn how to sell in a way that felt confident and free of ickiness.  I enrolled in Kendrick Shope’s Sales School, and after the horrid CAD/USD exchange rate, the final bill came to $2,700.

Investing in yourself and your dreams is hard. You have to trust that the money is going to the right place, for the right purpose, but without knowing for sure until the decision is long since made. The above to items cost me over $5,000 that absolutely could have gone to my TFSA or RRSP instead, but I think each of them was the right call. With a new computer and gameplan, I feel ready to build my business online.

6. I know what I’m here to do.

I’m not so much in love with the lifestyle of self-employment as I am with the mission. I like the idea of being my own boss and making my own hours and having unlimited vacation, but if we are going to be really honest, it’s only because I like the idea of no distractions. Up until this point, I’ve been having to run Money After Graduation around the rest of my life, which meant it always came second, but often third or fourth, on my list of priorities. Now it gets to be first.

I’m here to make money. That’s the point. I’m doing this because I truly believe I can make more money from selling my own products and my own brand than I can at a cubicle in someone else’s office. But the best part of it is I can’t and won’t make good money if I don’t do good work. I like the fairness of that, it keeps me accountable to the work before profit.

My leap to self-employment is not as scary as it first appears. There might be a few months of discomfort, but it also might be a perfectly seamless transition. I’m obviously hoping for the latter, but certainly prepared for the former!