Before you quit your day job - Things I wish I had known.
Lauren Goggins | Founder
Six years ago, after my yoga teacher training at Kripalu, I was inspired and all I wanted to do was teach yoga. At the time, I was teaching 7th grade at a Chicago Charter School that provided a nice life and great benefits. Because I was blinded by my passion to teach yoga, I didn’t even recognize what I had until it was gone. Since then I’ve been on a journey to more deeply understand my connection to money, and I’m sure I’m not alone.
Over the last few years at Bottom Line Yoga, I have learned a lot about managing finances. Although I’d love to say it was learned preemptively, I would be lying. I learned by living paycheck to paycheck, avoiding taxes, and pretending like I’d never get sick or hurt, and of course, counting on “hitting it rich!” Instead, what I learned… ignorance is not bliss, and preparation is everything.
Before I went on this journey to understand my relationship to money, I always felt hypocritical because I was teaching my students to “find balance,” and “create stability,” and they would look at me and say, "Wow, it's so inspiring that you're living your dream!" I would always chuckle and think, "If they only knew...."
Financial Health plays a HUGE role in one’s overall wellbeing, and I know it does for me. Think on this, in a Varo Money Poll, 85% of people said they “sometimes” feel stressed about money, and 30% said that they “constantly” stress about money. If people are stressed about money, then I would venture to say they also struggle with their physical health because the stress hormone Cortisol suppresses immunity and slows digestive function.
Stress affects health, and the majority of people stress about money.
Financial health is overall health, and as a yoga instructor, I was not prepared for what I was going to learn about myself on my journey in self-employment. First off, when I became a self-employed yoga instructor, I did not realize what that actually meant. If you’re considering leaving your day job, seek financial guidance before you make the decision. At first, you will lose a lot more than you gain, including a salary and employee benefits.
After a rough couple years of making gigs work, I went on my own journey toward personal financial health, and they are all things I wish I had learned sooner.
Step 1: How much does your lifestyle cost?
Figure out how much it costs to be you, and then multiple it by 2! I strongly suggest doing this before you quit your job. If you’re already self-employed, I’d encourage starting today. I created a great Excel budget, which I can send you if you email me.) It’s important to get as close to your actual expenses, as possible.
Knowing how much you spend will help you figure out how much you need to make.
Step 2: How much do you actually make, or need to make?
When you start a new business, or you begin self-employment, you might not have the answer right away, but I’d make sure you have Step 4, an Emergency Fund, secured before you leave. When I ask self-employed individuals how much money they make, they often ask me back, “Do you mean ME or my business?” If you’re asking that same question, then the first step is to separate yourself from your business. Complete two budgets - one for your business and one for you.
Personally, I incorporated Bottom Line Yoga as an S-Corp, right away, and began paying myself a salary, at first it was very small and sporadic. And this was the best way for me to keep US separate. Never forget you are not your business, and your wellbeing is always more important.. Your business doesn't need to support children, or parents, or retire, but you do. Once corporating, I suggest getting an accountant, mine is the best, and if you’re in Chicago, I'd be happy to connect you.
Also, learn from successful business owners, and always know how much you made last year, last month, last week. The only ways to reach goals is to track them! Of everything dollar earned, put aside 30% for savings and retirement.
Step 3: Pay your taxes - The IRS will always get their money.
This is a great tax bracket calculator - https://www.taxact.com/tools/tax-bracket-calculator.
The section you need to look at is the “tax as % of income” this is the percentage you will need to withhold for taxes. Example - you’re single and make $60,000. You’ll pay 17.9% of your income in taxes. Then you’ll want to pay your taxes on these dates - April 15, June 15, September 15 and January 15. And, again accountants help….
Step 4: Emergency Fund
Being self-employed means you might have great months, followed by horrible months, so you’ll want to create a safety net for yourself. Rule of thumb, set aside 3-8 months of expenses, so take your expense multiply that by length of time. If you have a partner with a stable income, you might need 3-months; however, if you’re single, I would save for a minimum of 8-months.
Keep this money separate from your checking account, so you aren’t tempted to spend it - it’s the only thing that worked for me. I personally use a Capital One high-interest savings account, so I’m earning closer to 1.35% instead of .03-.08% like most banks.
Then I set-up automatic transfers on pay days, like the 1st and 15th. Personally, when I was building my emergency account, I put 80% of my savings into this account until I reached my six month expense total. Once you reach your Emergency Fund goal, you can start putting your money more fun places!
Step 5: Retirement Account
Retirement savings should be happening, even if you have monster debt, because we aren’t allowed to take loans for retirement. Retirement is going to happen whether we are prepared or forced. If you have student loan debt, consolidate your loans to receive a low rate, pay them monthly, and forget about them. Student loans are considered “good debt,” like owning a house, or car.
So, if you’re self-employed you have a few retirement account options… however, I really only know about the accounts I use.
Personally, I’ve established my accounts through The Vanguard Group - https://investor.vanguard.com/corporate-portal/. And I have two accounts, I contribute to a Roth IRA, which invests my after-tax income into a retirement account, and my business puts money into a SEP-IRA, which invests money into a pre-tax retirement account.
All this means is that I will be taxed on the SEP money in retirement, and the Roth IRA money will be tax-free. As you can imagine, $1,000,000 in retirement is different if you still have to be taxed. Roth money is the safest retirement money because a million dollars, is literally a million dollars.
Step 6: Spend money on FUN - Life is too short.
After all the steps, you finally hear the answer you want to hear! Any money left-over after taxes and retirement, can either be invested with an advisor, or you can spend it.
Just make sure you’re taking care of your future-self.
Remember that it took me years to learn this, and also establish a system for my finances, but the more I learned the more grounded I felt and the more I enjoyed spending money. Understanding my financial status has helped me become grounded and feel stable in my life experience. For more information, I would love to help anyone out there who’s considering leaving their steady job for self-employment, or thinking about starting a small business. Also, I know a few great financial advisors that can be very informative.
The most important part of a financial plan is to establish a plan you can stick with, and then forget about it. Money can be stressful, so the best way to earn money is to get financially grounded, and then go out into the world and create beauty. Creativity leads to revenue, so if you're ever stuck with the fear of money, or not enough, attempt to shift to a mindset of "what can I give away" or "what can I create" and you will likely find a solution!
Creativity is the fuel of your business. Fear of money leads to bad business decisions, so just keep doing the stuff that bring you joy!