The Reality of Doing What You Love, Part 1: Figuring Out the Finances

I've talked a lot about "doing what you love and loving what you do" here on the blog. I've shared my career/life makeover story, I've shared my tips on how to make a big life + career changes, and I've asked you to think about what you would do with your time if money wasn't an issue.

As you know, I believe that all of this is important and inspiring--and yes, I am 100% happy that I left my desk job to work for myself and to spend my days doing what I love (and I want you to be able to do the same--if that's what you aspire to do!), but for most of us, money is an issue. And it's important to remember real life plays a part in all of this, too. 

So, in answer to a request that I received in my  3 Year Blogiversary post, and in order to paint as realistic a picture as I can about life post-working-for-the-man, I've decided to do a 3-part series tackling the reality of making a living teaching yoga, making art, blogging, and consulting [Or doing whatever it is that you want to do!].

I think that my lifestyle is pretty great, but I want to make it clear that it's not all sunshine and bunnies in self-employment-land. 

Thus, today, we talk the financial logistics of doing what you love (when what you love involves striking out on your own). Here are some of the challenges that you must work through if you decide to take the plunge and spend your life doing what you love...

Say goodbye to paid vacations.
When you work for yourself, you no longer have paid time off. If you're not working, you're not making money. Period. For people who have worked for someone all of their lives, this is a BIG change. 

When I go on vacation or take time off, I have to work extra hard before and after to make up for the lost income from taking that week off. When we eventually decide to have kids, I won't have any paid maternity leave. When I'm sick, I lose money if I have to get a sub for my classes. 

Planning for time off without pay is something that you have to get used to when you work for yourself or work in a non-traditional setting, and it definitely takes some getting used to. 

I recommend setting yourself up so that you're not living paycheck to paycheck (no matter what your career choice!), so that you have the luxury of "calling in sick" and not worrying about how you're going to buy groceries. Yes, this might mean that you have to work harder than you did at your old job--where the paycheck was the same every time, no matter what happened--but if you love what you're doing, working a bit more/a bit harder isn't the worst thing that could happen ;) 

Are you a business or an independent contractor? 
Deciding how you want to categorize your biz is important. Is it just you, running around to different yoga studios to teach? Then maybe you're just an independent contractor. Are you creating a design business with your own biz credit cards, bank account, office space, etc.? Then maybe you need to incorporate. All of this is important for tax and bookkeeping reasons, and it's something that you have to pay attention to when you leave a job that does all of this back-end stuff for you. 

Here's the IRS page where you can read all about the differences between these two statuses. 

FYI, I've been an independent contractor since I left my job, and it's worked well for me. I talked to my accountant and he helped me make this decision, and we have checked-in about it at least once every year. However, I'm at the point where I'm thinking that incorporating makes the most sense, so I may do this at some point in 2014. It's a very individual, case-by-case decision that should be made with the help of an accountant or financial advisor. 

Speaking of taxes, UGH, taxes. 
When you work for yourself, your taxes become a NIGHTMARE--even with an accountant (which is how I do it). The good news is that all of your work-related expenses and travel are tax-deductible, but bad news is that you have to keep track of all of this. [I know.]

Each year I start out organized and positive. "This year I'm going to enter all of my receipts into my expenses spreadsheet at least once per week!" And come January or February of the following year, I always have to set aside a chunk of time to slog through my box of receipts and log them all in my spreadsheet, categorizing random receipts from almost a year ago. Not so fun.

But, again, if you have a good accountant this becomes much easier, and you can deduct things like a portion of your bills (if you have a legit home office), some of your car mileage (if you do a lot of travel for your job), and bigger purchases like a printer or scanner, nice camera, etc., if it's truly needed for your biz.

Oh, and you also have to keep track of all of the income that you have coming in. And you have to pay estimated taxes every quarter (my accountant tells me how much to pay and where to send it, and I just follow his instructions--so thankful for him!). 

It's a lot to keep track of and a lot of spreadsheets and paperwork. Not only are you the maker or the talent or the teacher, but you're also the secretary, the manager, the HR department, and the day-to-day accountant. 

Valuing your services + invoicing.
One of the things that has been quite a challenge for me--and as I understand it, is quite a challenge for many self-employed women (and I say women because I have read that this is a more common issue among females)--is charging what you're worth. Placing value on your services and not undercharging for your hard work. 

Both my dad and Ben have come to me many times to tell me that I need to raise my painting prices, or make sure that I'm charging someone for all of the extra work that I'm doing on their project. When someone asks for a price quote, I always double-guess myself and obsess over the price. When someone asks how much they owe me for my services, I always have a little panic attack inside--even when we already agreed on a price beforehand! 

Another challenge when it comes to valuing your services is that often, if you teach yoga or do some sort of creative work, in the beginning, many of your clients will be people that you know.  SO many of the people who commission paintings from me are students, friends, and even family, and do you know how guilty I feel charging these people full price? So, often, I discount the services in some way, and sometimes this causes me to lose money. 

Although I'm all for offering select discounts to people who you feel really deserve it, you have to charge enough that you can support yourself. 

So how do you figure out what to charge? Here's what I recommend thinking about when deciding on pricing (this is not an exact science, but it's helpful!):

• Look around at what other people in your industry are charging for similar services. Do they have more or less experience than you do? If more, you could charge a bit less for your services, if less, you could charge a bit more. This is where you can start.
• If you don't have people to look at who are doing what you're doing, think about what sort of hourly rate you need to earn in order to make this project or job worthwhile. What did you make at your desk job? What do you need in order to justify taking on this endeavor?
• Factor in additional costs: supplies/materials, travel, assistants, etc. 
• Don't forget about the additional time spent preparing, getting there, setting up, invoicing, discussing logistics, etc. For instance, if you're charging for a 1-hour yoga party, ensure that your hourly rate or total cost includes the time spent preparing a sequence, driving there, setting up, cleaning up, and driving home. 

Where did all the benefits go?
When you work for someone else, you often get health insurance, dental, vision, and some sort of retirement or investment account (sometimes with a matching contribution from your employer!). If you get hurt on the job, you can get worker's comp. If you get laid off, you get unemployment. You're often covered by company liability insurance (if applicable) and sometimes you get paid to travel, go out to fun dinners or lunches, etc. 

When you have your own biz, all of this disappears. You must purchase your own health insurance (= expensive and often crappy!), you must purchase your own liability insurance (if teaching yoga), and you must take the initiative to build your own nest egg, or you'll have nothing to fall back on or live on when you retire. 

If you're married and your spouse's job provides insurance and other benefits, that's helpful (I was very excited about getting on Ben's government health insurance plan when we got married!) , but I think it's still important to set up your own investment or retirement account and set aside a bit of every check in some sort of rainy day fund (which, if you work for yourself, can also become your "I got really sick" or "I got hurt" fund). 

I have done all of this, but it took me a lot longer than it should have to set it all up, and I'll never have as much in my retirement account as those whose employers match their contributions (amazing!). 

All of this being said, it's still totally worth it (in my opinion). 
Although many of the above logistics totally stink, I would still trade all of my old benefits, paid vacation time, and lunches out at swanky NYC restaurants in order to be able to spend the morning writing, the afternoon painting, and the evening teaching yoga. 

I may lose money when I take a vacation, but if it's a pretty day outside and I get the urge, I can take my dog on a walk on a Monday at 1:30pm. To me, that mini-vacation is just as stress-relieving as that Memorial Day day Monday that many American workers will get off in a few months.

So there you go! Fellow creatives, teachers, and small biz dreamers, I hope you found this helpful!

Next week, we tackle Part 2 in this series: "Scheduling Stress." { A BIG topic for this girl!}