Once upon a time, I worked at a nonprofit. The job, while rewarding, was a lot of work for low pay, and the organization was full of office politics and internal drama. I used to dream of quitting my job and striking out on my own, being the creative #Girlboss I knew I could be.
In July 2014, I did just that. I quit my safe office job to be my own boss — while I had student loans. It was a gamble to replace a steady paycheck with inconsistent income, but the move paid off. I ended up doubling my income and paying off my debt early.
While being my own boss has been a good move for the most part, there are things that I didn’t consider (or even know about) before I pursued self-employment.
Here are six financial lessons I’ve learned from being my own boss.
1. Self-employment tax sucks
You know when you get your paycheck and you see all of those deductions? As an employee, you pay half of your Social Security tax and Medicare tax. Your employer pays the other half. When you’re self-employed, you are both the boss and the employee — and get to pay both!
According to the Social Security Administration, “If you’re self-employed, you pay the combined employee and employer amount, which is a 12.4 percent Social Security tax on up to $118,500 of your net earnings, and a 2.9 percent Medicare tax on your entire net earnings.”
This tax law makes sense in a way, but it doesn’t hurt any less when it’s time to pay up.
2. Where you live matters (a lot)
Before I was self-employed and became a personal finance nerd, I never considered how state income taxes affected my finances. I didn’t realize just how varied the income tax rate is by state.
I quit my job when I lived in Oregon and I currently live in California, both of which have some of the highest income tax rates in the nation. When quitting my job, I didn’t consider my state’s income tax in my decision.
When creating a business and determining your pricing model, you need to think of things like this — not just what you need to survive. Figure in your state’s taxes if you’re considered working for yourself.
3. Business expenses are still expenses
As a business owner, you can deduct certain business expenses. Got a new laptop for your writing business? That’s a business expense. Have a lunch meeting with a client? That’s a business expense.
While the IRS has set up this system of deductions to help ease the burden on business owners, the deduction isn’t dollar for dollar.
Before I quit my job, I often heard “I’ll just write it off!” from my self-employed friends. I was under the (wrong) impression that if you deducted $100 from your taxes, you’d pay $100 less come tax time.
But business expenses are not deducted on a dollar for dollar basis. Qualified expenses help you lower your taxable income, but at the end of the day they are still expenses.
4. You can’t write everything off
After a fairly brutal tax season this year, I talked to my accountant to see about any deductions we may have overlooked.
I moved to California this year and my rent increased coming from Oregon. I work from home 95 percent of the time and I’ve heard of others writing off a portion of their rent.
Excited about that prospect, I talked to my accountant but was swiftly shot down. In order to deduct a portion of your rent, you need to have “regular and exclusive” use of your home for business needs.
According to the IRS, “You must regularly use part of your home exclusively for conducting business. For example, if you use an extra room to run your business, you can take a home office deduction for that extra room.”
The “exclusive” part made me ineligible. If I had a dedicated home office, I could do it. In reality though, I work from the dining room table, my desk, and after a long day, from bed. All of these places are multifunctional and most definitely not exclusive.
5. You pay taxes quarterly
Ok, you might be picking up on a theme at this point: One of the worst parts of being self-employed is taxes.
As a business owner, you don’t just pay taxes once a year. You pay them four times a year! If you don’t, you may be hit with an underpayment penalty and have a huge tax bill come April.
Even after two years of being self-employed, paying taxes every few months still hurts. Though I save for my quarterly taxes in a separate bank account, it’s always tough to part with your hard-earned money, especially when your tax rate is so high.
6. You have to fund your own sick and vacation time
When you dream of being your own boss, you probably think of working on the beach, sleeping in, and working on your own schedule. Unfortunately, working for yourself isn’t always that glamorous.
You have no employer benefits, which means you pay out of pocket for health insurance. Not only that, but you don’t have any paid sick or vacation time.
Everyone says that as a business owner you need an emergency fund. Of course you do! But everyone needs an emergency fund. Business owners, however, do need to fund their own sick and vacation time.
Why? Because if you don’t work, you don’t get paid.
I learned this lesson big time this year when I took a dream vacation to Italy. I budgeted for the vacation, but not the actual amount of work I lost during those two weeks. I worked as much as possible before and after my trip, but when it came time to invoice I ended up making much less than I normally do.
Just this month, I was struck with the super flu and was out of commission for nearly two weeks. I missed out on thousands of dollars in productivity because I got sick. Let me tell you — there’s nothing fun about worrying about money when you feel like you’re on your deathbed.
So I’ve set up separate sick and vacation funds that I will contribute to regularly. Next time I choose to go on vacation or unexpectedly get sick, I won’t feel like I’m getting screwed.
It can still be worth it, though
If you’re thinking of being your own boss, take these six lessons to heart. I wish I would have learned them earlier, but I was caught up in the whole “idea” of being my own boss, rather than thinking practically about my financial picture.
Being your own boss can be a great move if done right. After all, it’s what helped me double my nonprofit salary and pay off debt even faster. But it’s important to think about all the financial implications of doing so first.
Interested in refinancing student loans?Here are the top 8 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.20% APR (with Auto Pay) to 6.99% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 6.89% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of December 13, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 12/13/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for SoFi.
3 Important Disclosures for Figure.
Figure’s Student Refinance Loan is a private loan. If you refinance federal loans, you forfeit certain flexible repayment options associated with those loans. If you expect to incur financial hardship that would impact your ability to repay, you should consider federal consolidation alternatives.
4 Important Disclosures for College Ave.
College Ave Disclosures
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
1College Ave Refi Education loans are not currently available to residents of Maine.
2All rates shown include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
3$5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees.
4This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
Information advertised valid as of 1/1/2020. Variable interest rates may increase after consummation.
5 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. Mortgage lending is not offered in Puerto Rico. All loans are provided by KeyBank National Association.
ANNUAL PERCENTAGE RATE (“APR”)
There are no origination fees or prepayment penalties associated with the loan. Lender may assess a late fee if any part of a payment is not received within 15 days of the payment due date. Any late fee assessed shall not exceed 5% of the late payment or $28, whichever is less. A borrower may be charged $20 for any payment (including a check or an electronic payment) that is returned unpaid due to non-sufficient funds (NSF) or a closed account.
For bachelor’s degrees and higher, up to 100% of outstanding private and federal student loans (minimum $5,000) are eligible for refinancing. If you are refinancing greater than $300,000 in student loan debt, Lender may refinance the loans into 2 or more new loans.
ELIGIBILITY & ELIGIBLE LOANS
Borrower, and Co-signer if applicable, must be a U.S. Citizen or Permanent Resident with a valid I-551 card (which must show a minimum of 10 years between “Resident Since” date and “Card Expires” date or has no expiration date); state that they are of at least borrowing age in the state of residence at the time of application; and meet Lender underwriting criteria (including, for example, employment, debt-to-income, disposable income, and credit history requirements).
Graduates may refinance any unsubsidized or subsidized Federal or private student loan that was used exclusively for qualified higher education expenses (as defined in 26 USC Section 221) at an accredited U.S. undergraduate or graduate school. Any federal loans refinanced with Lender are private loans and do not have the same repayment options that federal loan program offers such as Income Based Repayment or Income Contingent Repayment.
All loans must be in grace or repayment status and cannot be in default. Borrower must have graduated or be enrolled in good standing in the final term preceding graduation from an accredited Title IV U.S. school and must be employed, or have an eligible offer of employment. Parents looking to refinance loans taken out on behalf of a child should refer to https://www.laurelroad.com/refinance-student-loans/refinance-parent-plus-loans/ for applicable terms and conditions.
For Associates Degrees: Only associates degrees earned in one of the following are eligible for refinancing: Cardiovascular Technologist (CVT); Dental Hygiene; Diagnostic Medical Sonography; EMT/Paramedics; Nuclear Technician; Nursing; Occupational Therapy Assistant; Pharmacy Technician; Physical Therapy Assistant; Radiation Therapy; Radiologic/MRI Technologist; Respiratory Therapy; or Surgical Technologist. To refinance an Associates degree, a borrower must also either be currently enrolled and in the final term of an associate degree program at a Title IV eligible school with an offer of employment in the same field in which they will receive an eligible associate degree OR have graduated from a school that is Title IV eligible with an eligible associate and have been employed, for a minimum of 12 months, in the same field of study of the associate degree earned.
The interest rate you are offered will depend on your credit profile, income, and total debt payments as well as your choice of fixed or variable and choice of term. For applicants who are currently medical or dental residents, your rate offer may also vary depending on whether you have secured employment for after residency.
The repayment of any refinanced student loan will commence (1) immediately after disbursement by us, or (2) after any grace or in-school deferment period, existing prior to refinancing and/or consolidation with us, has expired.
POSTPONING OR REDUCING PAYMENTS
After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship.
We may agree under certain circumstances to allow a borrower to make $100/month payments for a period of time immediately after loan disbursement if the borrower is employed full-time as an intern, resident, or similar postgraduate trainee at the time of loan disbursement. These payments may not be enough to cover all of the interest that accrues on the loan. Unpaid accrued interest will be added to your loan and monthly payments of principal and interest will begin when the post-graduate training program ends.
We may agree under certain circumstances to allow postponement (deferral) of monthly payments of principal and interest for a period of time immediately following loan disbursement (not to exceed 6 months after the borrower’s graduation with an eligible degree), if the borrower is an eligible student in the borrower’s final term at the time of loan disbursement or graduated less than 6 months before loan disbursement, and has accepted an offer of (or has already begun) full-time employment.
If Lender agrees (in its sole discretion) to postpone or reduce any monthly payment(s) for a period of time, interest on the loan will continue to accrue for each day principal is owed. Although the borrower might not be required to make payments during such a period, the borrower may continue to make payments during such a period. Making payments, or paying some of the interest, will reduce the total amount that will be required to be paid over the life of the loan. Interest not paid during any period when Lender has agreed to postpone or reduce any monthly payment will be added to the principal balance through capitalization (compounding) at the end of such a period, one month before the borrower is required to resume making regular monthly payments.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of November 8, 2019 and is subject to change.
6 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers.
7 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 1.76% effective November 10, 2019.
8 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 12/019/2019 student loan refinancing rates range from 1.90% to 8.59% Variable APR with AutoPay and 3.49% to 7.75% Fixed APR with AutoPay.
|1.99% – 6.89%1||Undergrad & Graduate|
|2.31% – 7.36%2||Undergrad & Graduate|
|2.06% – 6.81%3||Undergrad & Graduate|
|2.62% – 6.12%4||Undergrad & Graduate|
|1.99% – 6.65%5||Undergrad & Graduate|
|1.99% – 7.06%6||Undergrad & Graduate|
|1.85% – 6.13%7||Undergrad & Graduate|
|1.90% – 8.59%8||Undergrad & Graduate|