We were cleaning last night, getting the house ready for a meeting with our new Realtor this morning (it went great, she’s great, life is great). When I was cleaning the floor in my husband’s office, it struck me that he still works at the same small desk he had when I met him, eight years ago. It’s actually the same desk he got when he was in college, so he’s had it since the mid-90s. The office chair he uses was dumpster-dived not long after we met each other.
When I first met my husband, we were both working for a big company, and his desk was just part of his bedroom furniture. Once he became self employed in early 2002, he started spending much more of his time at that desk. He was thrilled to replace his very ragged office chair with our dumpster find, and has been working there ever since. Seven years later, we’re still happily self-employed, and doing quite a bit better financially than we were in those early years. But it would never occur to my husband to replace his desk or his chair, since they’re both still perfectly functional.
I sometimes get emails from readers asking for tips about how to become self-employed. Of course there are lots of issues to address, but one that always comes to mind is don’t fake it till you make it. I’ve seen people who became self employed and immediately sank several thousand dollars into new office furniture, even if they don’t meet with clients in their office (we don’t – everything we do is online and over the phone, so all that is required is a quiet office space with high speed internet and a good phone service). There’s an endless amount of money that can be spent to get a business off the ground. Some of it is necessary, and will have an impact on how your business performs. But some of it is not, and will just extend the time until your business becomes profitable. And since a good number of small businesses never become profitable, that initial expenditure might just end up being debt that you have to pay off once you secure another job.
If you’re looking to start a business or even just become self-employed part time, make sure that you apply the same frugal eye to business purchases that you do to all your other purchases. Ask yourself if you need it, what sort of return on investment you’ll get, and whether there’s a less expensive option out there. Don’t be fooled by the idea that business expenses are a tax write-off. Yes, you can deduct business expenses, but it’s better to keep $100 in your pocket and pay $25 in taxes (just an example) than to spend that $100 on a business expense and save yourself the $25 in taxes. You come out $75 ahead in the first scenario. So unless you really need to spend the money, don’t let yourself be lulled into the idea that spending it is a good idea because of the tax write-off.
Starting a business is tough, no doubt about it. And it’s likely that you won’t earn a whole lot of money in the beginning, no matter how hard you work. By spending a bunch of money upfront without carefully considering whether the money really has to be spent, some people set themselves up for a stressful start to self-employment.
SavingDiva says
Excellent advice! I would love to start my own business someday (just waiting for a genius idea)….
Gabriel says
My husband has a similar work-at-home situation–never meets clients, same desk since college in the early 90s. Desk chairs scavenged from a prior job that closed their local location. He is finally really to spend some money on a new set-up for ergonomic reasons. He plans to switch to a standing desk arrangement and has been shopping around for an inexpensive and flexible choice.
Bill says
Great post! There is plenty of wisdom here for those seeking it. The recent economic down turn has offered me the opportunity to go into business for myself.
My situation is probably more tenuous because I’m also the partner in a bootstrapping start-up that is seeking to reach the tipping point without (a) venture capital and (b) without going into debt.
So far, so good but as you’ve noted there is an endless list of temptations wearing the veil of legitimate business needs. I’ve chosen the “until I run out of places to pile the money I’m paying myself before buying stuff” approach.
Speaking of taxes, that is arguably the other chief reason most start-ups fail, failure to set aside/pay taxes.
Great article though, as is the majority of the content on your blog!
FrugalBabe says
Bill – Sounds like you’ll be just fine with that approach! And good reminder about taxes. When my husband first became self employed, he met with an accountant who recommended a separate bank account where 30% of all income should be deposited immediately upon receipt. That way it’s there when it’s time to pay taxes. Taxes can come as as surprise for people when they first become self employed. There’s no employer paying half of the social security and medicare taxes anymore. For a long time we paid our taxes quarterly, although we now pay federal taxes monthly. I love http://www.eftps.gov for paying federal taxes electronically. It’s easy, fast, accurate, and no worries about getting checks to the IRS on time.
AD says
FB, I’d love more posts about self-employment and starting a business! That’s such great advice. When I was in real estate, I spent money on a few things that weren’t necessary, but the brokerage firm made me think these were things I needed, and I went against my better judgement, being new and unsure of myself. I won’t make that mistake again!
GC says
nice discussion
perhaps that applies to a few more things than just self employment
KM says
I’d love more posts about starting a business as well since I am planning on starting one in the near future. Great post as always!
Carol from Savvy4 says
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FB @ FabulouslyBroke.com says
While I agree with not faking it in the sense that you surround yourself with luxury hoping it’ll help you make it…
I am still of the idea of tricking yourself into being confident and faking your mind until you really make it. I really think that sometimes I fake it until I make it, just to reassure myself … and it works for me.
But in the context of sinking money into furniture and other stuff.. I never even considered it to be an issue, but I suppose many do that.