By now, you’ve probably come to realize that “adulting” comes with a whole world of responsibility. Maybe you were prepared for adult responsibility. Maybe you weren’t. Maybe you used your credit cards responsibly, in a fashion that leverages all the dividends, extended warranties, and purchase protection that living on cash cannot provide. Or perhaps you got buried in consumer debt. I don’t know your situation.
What I can tell you is that getting into the business of making money online is very much akin to the experience of growing up and becoming an adult. There are responsibilities. And as great as that time and location freedom might be, they come at the cost of self-accountability. No one is going to hold you responsible for anything but yourself when you choose to go into business for yourself.
Sure, you might know that you need to pay a certain amount of money for domain registration and web hosting, or for online subscriptions and services. But what about these three other “bills” that you may not have even consider if you’ve still got the “employee” mindset?
1. Emergency Savings Fund
Now, this is hardly unique to dot com professionals, but it is especially important when your online business is subject to ebb and flow. You might have an incredible month of affiliate marketing in March, only to have your primary campaign come crashing into oblivion and putting you deep in the read for April. These sorts of things happen and you need to be prepared for them.
I came across an older PBS NewsHour video the other day, and it said that about half of Americans could not absorb an unexpected expense of $400 without borrowing money or selling something. That’s incredible. And we’re talking about middle class people who otherwise look like they’re doing just fine. About the same could not come up with $2,000 in 30 days if they had to.
When you run your own online business, you need to have a larger savings “buffer” to weather unexpected storms. What if your online income goes to zero for a few months in a row? In addition to saving for retirement, you need to save for potentially many rainy days to come.
2. Income Taxes
There are many things you can easily take for granted once you get used to them. One example is the steady paycheck. If you work on salary, or even if you get paid hourly but you get reasonably consistent hours, you can usually expect to get roughly the same amount of money every two weeks. That can lull you into a state of comfort, which might make adjusting to the #1 tip above a little challenging at first.
But you know what else happens when you’re conventionally employed by a more traditional company? All of those deductions happen automatically at the source, so you mostly never even see them. Your employer will automatically deduct your income tax from each paycheck. But when you’re self-employed, you don’t get a paycheck. You earn sales commissions for your affiliate marketing efforts. You get a payout from Amazon for the ebooks you sell.
And, generally speaking, they’re not going to tax you at the source, because you’re not an employee. What this means is that it is up to you to save enough money to cover the bill when the tax man comes knocking. Yes, you can save a lot of money through valid business and home office expenses, but you’ll still on the hook for income tax and other taxes. And you want to make sure you’ve got enough cash on hand to take care of those bills.
3. Reinvest Into Your Business
All too many online entrepreneurs forget about this last point. They might think that they’re being prudent and savvy by avoiding spending any “unnecessary” money on their business. But the truth is that saving money actually costs you more money if you’re not careful. If you want to keep your business moving forward, if you want to keep growing it, you have to be willing to invest in it.
Not all of these investments are going to pay off, and that’s okay. I’ve thrown a few hundred dollars into camera gear, because I felt like I wanted to up my YouTube game. I’ve purchased several books to read, because I felt like I could apply those lessons to my blogging and online business. When you buy new equipment or take relevant courses, you’re not just spending money; you’re investing in your future.
And you need to set aside a certain amount of your earnings for exactly this purpose, just as you need to save for an emergency fund and for your tax liability. And remember that, as corny as it may sound, you need to pay yourself first.