You may have seen the blog posts I wrote about the 22Seven personal financial management app. I enjoyed being involved in the #my22Seven campaign because I can see that the app is able to add real value to people’s lives. Now there is a new campaign, #StartOver, and 22Seven asked if I would share my story of starting over.
I have a few start over stories, but the one which has had the most impact from a financial perspective is my transition from a corporate job of 10 years to being self-employed. It’s a transition that has a huge impact, not just financially and mentally but also on relationships. Including one’s relationship with oneself.
I didn’t do everything right and I’m still not doing everything right by a long shot, but I have learnt lots of lessons and I thought sharing the story might be helpful to those that are considering the jump themselves. This is certainly not all of my thoughts on the topic. Just a couple focused around the financial considerations.
It’s Not For Everybody
A corporate job with a fixed monthly salary certainly has positives. I would never tell people they should give up their job to be self-employed, it’s something that has to come from inside you. It’s not for everyone and even for those few, it’s often only when the circumstances and timing are right.
Banks hate self-employed people, so from a financial perspective it’s a very big step. I don’t really understand how a bank will lend huge amounts of money to someone who earns a salary, even though they could be retrenched at any time. Yet even though I’ve been able to pay myself a salary for 5 years now, I still have to jump through so many hoops that I don’t even bother with banks anymore.
For some the jump is a simple crossover from doing something for a boss to doing something for themselves. A lot of graphic designers make this jump because all they need is a desk and a computer and they can offer the same service. For myself it was a lot more complicated. I was an IT manager for an international company and I didn’t leave to be an IT manager for myself. In fact I wanted to get into something different. So it was a double whammy.
But this article is not about starting a business. That’s a much longer article for another day. In this article I am focusing on personal finance. I’m assuming you have the money saved or borrowed that you need to run your business for at least 6 months. That may include paying you a salary, or you plan to live off savings until the business can pay you a salary. Either way, there are things to consider with regard to your personal finances.
A Penny Saved Is A Penny Earned
I believe that this saying has helped me in my financial life more than any other. The idea that by spending less, you’re basically earning more. There are many ways to spend less, paying attention to each of your expenses and trying to keep them to a minimum. It says a penny, not a pound, because every penny counts. It all adds up. The R60 you saved on your groceries plus the R90 you saved in your cellphone bill plus the R230 you saved on petrol by using the bus, equals quite a bit of money at the end of the month.
The other way one can save money is by keeping an eye out for deals. If you know you are going to need a new laptop soon, start looking at prices. See what new models are coming out. Often when a new model comes out you can get the previous model at a discounted price. This works for cars too. If there is a sale, being familiar with the prices of candidate items will help you spot a good deal, and equally importantly, avoid a bad deal.
Don’t Underestimate Your Current Earnings & Perks
I also didn’t realise the cost of the benefits I was receiving as a salaried employee. Medical aid, pension, etc. When you actually have to pay them yourself at the end of the month, they suddenly add up to so much more than you realised.
Plus there are additional expenses like income insurance which every self-employed person must have. One of the expenses I didn’t plan for was meetings. Initially I was having a meeting a day, or more, with clients, prospective clients and people who ‘wanted to run an idea by me’. They were all in town, normally at coffee shops. Between petrol, parking and coffees, those meetings were costing me a minimum of R1000 a month. Not to mention the wasted time. Now I Skype as much as possible and schedule the meetings I still need to have on one day of the week if possible.
Routine Equals Discipline
When I was working 9 to 5, things were done in a routine. I would wake up at a specific time. Go to work. Eat my packed lunch. Go to gym after work. Have dinner and pack a lunch for the next day. When I suddenly didn’t have that routine I stopped going to gym, I stopped cooking healthy meals, I started working late and waking up at different times. It was bad, I became unhealthy, I picked up weight, I was tired which in turn made me stressed. And on top of it all, it was costing me more money in food.
This is what I was referring to when I said transitioning from a 9 to 5 to being self-employed affects your relationship with yourself. You need to suddenly become very self-disciplined and self-aware. You have to recognise the signs of stress in yourself. You have to notice that your health is suffering and that you’re getting unfit. Then you have to start creating your own routine. Schedule your gym workouts like appointments, spend time away from your desk, get to bed at a decent time at least 3 nights a week.
This may not sound like financial advice, but when you work for yourself, sick days are unpaid and paying for gym memberships you never use is a waste of money. These are definitely money related. You have to think long term. I haven’t even started to talk about the impact on your family and friendships if you allow yourself to work super long hours every day.
I don’t regret the move, but it’s certainly been an up and down ride. Some months are great and rewarding, others stressful and sometimes depressing. But I can say for sure looking back over the last few years that I have grown immensely as a person. I also know that I would struggle to go back to a 9 to 5.
How would 22Seven have helped me? There were 2 things I think 22Seven would have been very useful for.
One would have been to calculate my monthly expenditure more accurately before I left my 9 to 5. I think I underestimated what I was actually spending on things due to not looking at the real numbers and rather just taking a ‘guess-timate’.
The second thing is the cool new feature where you can invest in unit trusts straight from the app with minimal fees (like a quarter of the fees a broker would charge). Because I’ve been needing money for cash flow in my business, I haven’t thought about investing. I’ve always said that I’m investing in myself and in my business, but if I’m honest I could have put away R500 a month (if not more) without getting into financial trouble.
If I had done that for the last 5 years, I would have R30 000 saved plus the return of about 15% (if I’m understanding the fund information sheet correctly). Which from a rough calculation in my head would make it a total of around R40,000 now.
The best time to start putting money away is today. And now that we are allowed tax free savings of up to R30,000 per year, you would be extra stupid not to invest. The Old Mutual investments through 22Seven qualify for the tax free status.
Download the 22Seven app here (Android or iOS) and if you’re keen to share your feedback on your experience, leave comments below.
Have you transitioned from a 9 to 5 to self-employment? What advice would you share? Let us know in the comments below.
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