health insurance

If you’re self-employed, you’ve probably noticed that standard money advice often falls short.

A lot of what you read assumes you receive regular, predictable paychecks with taxes already withheld and benefits covered. Just try finding advice to deal with the following:

• A major customer abruptly changes payment policies, so that five-figure check you’re counting on to pay the bills lands weeks later than you expected.
• Your health insurer announces your premiums will increase 39%, and your insurance broker tells you that no other company will cover you for less…or at all.
• Congress dithers on renewing a key tax break, so your CPA advises (at Christmastime) that you’ll need to cough up thousands more dollars to make yourself “penalty proof.”

These aren’t hypotheticals. Each has happened to me as a small business owner. Predicting income and expenses when you run your own show is often as much art as science. When you’re providing your own benefits, handling your own taxes and doing your own billing, your financial life becomes complex in a way that would confound most of the W-2 world.

This is what has helped me:

A business line of credit. Excellent credit scores helped me land a low-rate line of credit when I opened my business checking and savings accounts. I relied on it heavily when I was getting started to cover those inevitable gaps in cash flow (translation: slow-paying customers). I still use it occasionally to deal with unexpected expenses; I don’t carry a balance for a day longer than necessary, but I’d rather pay a few bucks in tax-deductible interest for a few days than keep a huge wad sitting idle in a business savings account.

A tax pro. I don’t write about taxes often, and almost never about business taxes. So why would I waste time trying to keep abreast of business tax law and struggling to do my own taxes when I can hire someone? Especially since that someone lives and breathes taxes, and can be counted on to represent me in an audit. We small business owners often have trouble delegating, but we’re far better off spending our time making money than wrestling with tax forms.

A simple rule of thumb. Early on, a CPA said he could bill me to make some elaborate projections, but he suggested a simpler way: save half. If I put aside half of every check that came in, I’d be able to cover my taxes and expenses. Ten years later I have a much better handle on cash flow, but it still pretty much boils down to saving half of what comes in.

If you’re an entrepreneur, I highly recommend “The Money Book for Freelancers, Part-Timers, and the Self-Employed: The Only Personal Finance System for People with Not-So-Regular Jobs Paperback” by Joseph D’Agnese and Denise Kiernan, two freelancers who through trial-and-error figured out a money system that really works.