This article, written by Stephanie Taylor Christensen, was originally published on Citi’s Women & Co.
According to the Global Entrepreneurship and Development Institute’s GEDI Index, the United States ranks #1 among 17 countries for its high potential for female entrepreneurship. Ready to jump on the “be your own boss” bandwagon? Here are four critical questions to answer in the affirmative before you quit your full-time gig and strike out on your own.
1. Do you have an abundance of emergency savings?
Though it’s a common financial rule of thumb to set aside at least three to six months’ worth of income in an FDIC-insured savings account for emergencies, Henk Pieters, certified financial planner and president of Investus Financial Planning, says that advice is intended for those with very stable careers. For theself-employed, he recommends setting aside one year’s worth of your salary as a safety net in the event that business is slow or unexpected health issues, accidents, or personal events leave you unableto work.
2. Have you calculated the total monthly cost of your basic living expenses and debt obligations?
It’s imperative that you do this in order to identify the “bare minimum” you need to make each month—even if it’s by way of a part-time night job while you’re building the business by day—to cover your bills and rent/mortgage payments regardless of how business performs. A service like Citi® Financial Tools, available for free to Citi customers, can help you determine this figure, stay on top of your budget, and give you the information you need to gain greater control and plan for the future in one place.
3. Have you considered insurance/benefitsand taxes?
If your current employer pays for at least a portion of your insurance and benefits coverage, you may take them for granted. But they’re your responsibility when you’re the boss. Though all Americans who do not fall under the stated exemptions are now required to have health insurance, premiums for your coverage are tax deductible. Beyond basic health insurance, you should also consider short-term disability insurance (which will guarantee a portion of your income if you are unable to work temporarily for health reasons, including having a baby) and life insurance—especially if you have children.
Instead of viewing insurance as a burdensome cost, certified financial planner Kevin Cahill says having proper insurance is about protecting your financial security. “Your family’s lifestyle will change in a heartbeat if you haven’t protected them,” says Cahill. “With adequate insurance, you can recover even if terrible things happen.”
And remember that when you’re self-employed, you’re required to make estimated tax payments to the Internal Revenue Service (IRS) four times a year.
4. Are you willing to adjust your wants and needs?
Our society tends to judge success by the size of your home, the neighborhood in which you live, and the car you drive. Though you may feel even more accomplished as your own boss, you may need to adjust how you perceive and express your “status” when you’re an entrepreneur— especially when income is uncertain.
That said, Melody Wilding, a therapist for female entrepreneurs and young professional women, says the key is learning how to spend with intention. “Though you may not be able to splurge on designer handbags, that doesn’t mean spending money on yourself is forbidden—quite the contrary,” says Wilding. “Taking care of your own well-being is essential to building a successful company. So create a ‘fun fund’ for ‘you time’ to help you relaxand recharge.”
She also suggests starting a practice of journaling, or recognizing the things you’re grateful for each day, so you can acknowledge little “wins” along the way—even if the money takes time to catch up.
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