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Who’s the Boss? You are!

Parade Magazine

Being your own employer is great—there’s no dress code, and you decide when the workday’s over. But it has its challenges. Sure, you know you need medical coverage, but other financial and insurance matters also require your attention. Sara Horowitz, founder and executive director of the Freelancers Union, offers these tips.

Plan for dry spells. Independent workers are rarely guaranteed a steady income, so have a nest egg stashed away: An emergency account filled with six months’ worth of savings is recommended.

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Don’t mix business with pleasure. Keeping work and personal funds separate will spare you big headaches (and opening a second checking account is a cinch).

Save a little something for Uncle Sam. You should set aside about 30 percent of your income for taxes. If you don’t, you’ll be in for a nasty surprise come April 17: The self-employed pay twice as much into Social Security and Medicare as traditional employees.

Be safe, not sorry. Make sure you get the right insurance. Disability insurance is essential for the self-employed; it will replace a portion of lost income if you’re unable to work for an extended period. Liability insurance can shield you from lawsuits that arise from work-related accidents. And, if your work depends on expensive, specialized equipment, you should look into property insurance.

If you don't bill, you don't get paid. Send an invoice as soon as you and your client have agreed to a job. Check out invoicing software from companies such as FreshBooks or Harvest Time & Billing, as well as Billable, an easy-to-use web app.

[Related: Overdue for a Payout?]

Keep your accounts separate. Make sure your personal funds never mix with your business funds. Opening a separate checking account for your business income is easy, and it'll save you big headaches if you manage two balance sheets instead of one.

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