When you start working for yourself, you are joining many others who own businesses and are working to achieve their dreams. However, managing your own business can be difficult, especially at the beginning.
Although success in business is never guaranteed, there are strategies that could improve your chances of success, especially financially. Here are a few mistakes to avoid as a self-employed person.
1. NOT DELEGATING OR PRIORITIZING
When you are self-employed, you may find yourself doing everything in your business at first due to budget constraints. However, trying to do it all on your own may be a mistake, according to Ronne Brown, owner of Girl CEO and Herlistic in Washington, D.C.
Brown says, “We may go fast by ourselves, but we go far as a team.” For those who feel they cannot afford to delegate, Brown suggests keeping expenses low until you can afford to delegate.
If you do decide to delegate, it’s important to spend your money in ways that help your business grow. To do this, people should focus on the business operations and systems rather than just aesthetics, Brown says. Doing this effectively often requires prioritization.
According to Brown, “In the beginning, people are always focused on the look. But that’s not what truly creates the income in business.”
Brown recommends prioritizing bookkeepers and accountants, building automations or hiring someone to generate leads. Also, keep in mind that you can usually deduct the cost of contracted labor from your business taxes.
2. NOT SAVING FOR RETIREMENT
Saving for retirement as an entrepreneur can easily become a low priority. Preston Cherry, a certified financial planner in Green Bay, Wisconsin, says this is a common mistake made by self-employed people. While it's wise to reinvest income into your business, it's also important to build an emergency fund with three to six months of expenses and invest in retirement savings.
Cherry says self-employed people have multiple retirement savings accounts to choose from, including an IRA or a solo 401(k).
According to Cherry, “As a business owner, saving for your retirement also allows you to deduct the contributions for tax planning as well.”
Contributions made to traditional solo 401(k)s and traditional SIMPLE IRAs can provide tax advantages like reducing taxable income and allowing 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 features.
3. SPENDING MONEY ON COURSES YOU DON’T TAKE
As a new entrepreneur, you may want to increase your knowledge to make your business more profitable. This could involve spending money on courses or training, which can sometimes be expensive. While investing in yourself can be valuable, you may not get a return on your investment if you don’t take the courses and apply the knowledge.
Brown advises that before investing in any course or class, you should be fully committed and dedicated to doing the work without making excuses.
Brown also suggests researching before investing in a course, especially on social media, to ensure the person has a proven track record of delivering results.
She explains that when looking for a mentor or trainer, she focuses on their personal success in the area she wants to grow in.
4. NOT CONSIDERING HEALTH CARE COSTS
Self-employed individuals may worry about health care costs, especially without employer support. A health savings account (HSA) can help lessen the financial burden due to its tax benefits.
Cherry explains that HSAs offer tax-free contributions, growth, and withdrawals.
The contributions to HSAs are made before tax, the interest grows tax-free, and qualified withdrawals are tax-free. In 2024, singles can contribute up to $4,150, and families up to $8,300.
To open an HSA as a self-employed individual, you need a high-deductible health care plan. You may also qualify for the self-employed health insurance deduction to make health care more affordable.
5. NOT HAVING A CLEAR ‘WHY’
Entrepreneurship can be a way to make extra money or realize dreams, but it can also become a money pit. It's essential to have a clear purpose, which can guide you through difficulties and help you know when to persevere or when to stop.
“Entrepreneurship is not for everyone. It’s not supposed to be. It’s not the only way to wealth.”
