My Self Employed Dilemma

When I quit my job to work for myself I was terrified of not having my weekly paycheck. My husband has always been self employed, but I always had a steady paycheck.

That first winter was rough. Winters have always been the lean times for my husband’s business. We save in the summer and it gets us through the winter.

Now, almost four years later, we have almost a years worth of expenses in our savings. But I can’t seem to make a decision to use any of it. Money sitting in the bank equals safety to me.

I know there are so many other things I could be doing with that money; investing it, even taking a vacation. I feel like I can’t spend it because what if?

This is the self-employment dilemma. There are feast and famine months. The goal is to save during the feasting months so you can live another day when your starving. But what if you get so worried about the famine that you don’t ever spend?

This blog is about enjoying life while making that million. While I don’t think I am sacrificing much right now, I know I’m not enjoying life as much as I could be. I know I’m not building my business as fast as I could if I was willing to take more risks. Holding onto money with a tight fist doesn’t fit either part of that goal.

I spoke to a fellow entrepreneur who was amazed that I let that much sit in the bank. He said that he keeps about one month of expenses and invests the rest into his business. His business is very successful and earning multiple six figures per year.

I like to think I take calculated risks. I consciously make choices when I spend. But where is the line between safety and risk? I couldn’t do what my friend does, but what should I do?

After talking it over with my husband, we decided to set up a system. (I love systems! 🙂

Our System: Research

I tried to figure out how low our famine months have been and how long they’ve lasted. Things start to slow down around the holidays at the end of November. They usually pick back up by March or April. In thinking back I think the leanest month we have ever had was $700 total in income. Normally our lean months are between $2,000-3,000.

The worst streak we’ve had so far was a calculated one. When I had my daughter in May of last year and I took about 4 months off from work completely. My husband took about 6 weeks off during what happened to be his the busiest time of year. Then his brother/business partner had a baby two months later and took time off too.

Normally summer is when we pile away money for winter, but since we made less we saved less. Even during our leanest times we’ve only needed about $12,000 to get through the winter. Last winter we were still all set and didn’t have to touch the emergency fund.

Our System: Creating the Rules

So Our regular monthly expenses are about $5,000. If we had to cut to the bare bones we would be around $3,750 per month.

So We decided our system rules will look like this:

  • We have our six-month emergency fund that we do not touch. (only for unforeseen circumstances)
  • We have our Monthly Fund (link) but we cap it at $12,000. ($3750 minus $700 = $3,000 per month for 4 months)
  • After $12,000 is in the Monthly Fund we create a new fund, the Surplus Fund, which holds the surplus until we figure out what to do with it.

So After $12,000 we can decide what to do with the money. We haven’t settled on a plan for it, but I think it will be a combination of vacationing, saving up for a newer vehicle (Honda Pilot), investing, and adding money to our businesses.

Once we go through the lean months we will have to push the monthly fund back up to $12,000 before we do the extras. So right now our monthly fund sits at $12,000.

The First Use of the Surplus Fund

Since I met Chris Guillebeau I’ve been thinking more about traveling with the kids. I really want to stop thinking that I will travel when they are older and start just doing things going places now. As I said before I really want to visit Spain for at least a month.

So we just booked a cruise as a ‘starter trip’. We’ll see how our one-year-old and three-year-old do going to Honduras and Belize. We’ve already been before so I know it’s safe.

The cruise will cost about $3,000 total for the four of us. My brother in law is going and so are other friends and family. I am so incredibly excited about the trip.

But still, I keep the back of my mind keeps wondering if something bad will happen now that we’re spending some of the safety net. The only way to know is to try things. Since I want to live an extraordinary life while I can, I need to push out of my comfort zone. I should be happy that outside of my comfort zone means spending cash on a vacation. 🙂

 

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Hi I’m Jaime. Each and every week I bring you the top business advice from the people who know best.

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16 responses

  • That is some very real and practical advice! I am glad to hear you had enough money tucked away to go on a cruise. Don’t be too “uncomfortable” with enjoying yourself every now and then. I think you should also consider being a bit more “risky” with investing money in your business. That is what good entrepreneurship is about. Don’t be stupid about it though, do your research.

    Either way, you are in a better situation than I am. I still need to establish a steady stream of income. I just graduated from college though so I have some excuses. Wish me luck!

    • Good luck Steven!
      It’s funny how we get into habits- Since paying off all of my debt, and being so hard to be extremely frugal it’s hard to change the habit. But I suppose it’s a fun habit to break anyway! 🙂

  • I hear your dilemma, and I ended up using my savings to buy a place 8 years ago as the cash was just burning a hole in my pocket.

    I would look at things differently though. Instead of thinking you have 1 year worth of savings, think you are a set % of the way to where you have a big enough nut to literally do nothing and make X amount of money just from interest. Then, you will keep going.

    • It’s the whole “I don’t want to lose any of it” mentality. I could invest it so it could actually earn me money long term, or put it into my business to grow, but I like knowing that I have that much sitting in the bank “just in case”. If I think about it as the start of my nest egg to not work, then I’ll want to hold on to every penny and not lose it. I don’t want to see that number go down (when in reality it is going down because of inflation!)

      I will keep saving and saving and saving of course, but I don’t think it should be sitting in my savings accounts. But how much is enough for security?

  • Hey Jaime, after reading the first few paragraphs, I thought I was going to be able to give you some advice, but reading on I see you figured it all out for yourself – good for you! It sounds like you’re in pretty good shape. Yes, maybe you are a little far on the conservative side, but that’s ok. I can see you are not afraid to goad yourself out of your comfort zone, so I suspect, as your confidence increases, so will your willingness to get a little more aggressive with your savings.

    The only advice I will still offer is this: get more specific with that surplus and take action with it on a monthly basis. For example, if you say 25% each toward vacation, new vehicle, investing, and growing your business, then divvy that up each month into accounts for those purposes.

    I like Financial Samurai’s advice as well. It’s very much like the advice in Your Money or Your Life by Vicki Robin. I’ve got a discussion group starting 9/30 based on the 9 steps in that book. Love to have you be a part of the group – I think it’s really in line with where you’re going.

    Keep up the good work, and enjoy that cruise!!!

    • Thanks Chris!
      That’s a good idea. It’s hard since the overflow changes each month, but I can just prioritize it. I already have the accounts created in ING so it should be nice and easy. 🙂 Of course figuring out the priorities will be tough!

      • No, no, you’ve already got it down. You know what your priorities are, go with your gut. Don’t sweat the details too much, pick a percentage out of a hat if you have to and roll with it. You can always tweak it later. A very wise friend once said “it’s much easier to change directions than to overcome inertia”. Good luck!

  • It sounds like you face a dilemma I read about in Rich Dad Poor Dad series (I know, groan, despite what some personal finance people think, I think there are some valuable nuggets in there). He says that being self-employed is like buying a job, you may feel like you are free, but realistically, as you mentioned, if you stop working the cash stops coming in. The goal is to possibly put a system in place where you can walk away at some point, and the business will continue on. Another option is to create ways to get passive income through investing. Do you think you could build enough passive income to at least make up the deficit you feel during the winter months to help alleviate the savings during the summer? As you continue to build your passive income from investments, there may come a time when you can let go and leave for months at a time to travel, then come back and write about your endeavors! Our goal personally is to have enough passive income to pay our expenses each month, then if we want to work, we can make that choice, and if we don’t, we are free to volunteer our time, travel, etc. Good luck! I hope you find a happy medium!
    Alex

    • I like Rich Dad Poor Dad in general. I know exactly what he means that you are buying yourself a job. What changes to me, is if you love it. I love coaching. I would do it even if I didn’t need to. So while I am growing other aspects and passive income etc, I still love working, Right now I have the choice if I want to work I can work, and I choose to work part time. 🙂

  • Great read! That’s a pretty astounding amount of extra cash you have set aside. If I had that much I would without a doubt be doing some investing now. Especially considering how low the market is now. In my opinion, it’s not going to stay this way forever, my as well get in now.

    Your system sounds like a great one. I’m glad to hear you are using some of the cash to go on a vacation… Not just a vacation but a CRUISE!! I am a HUGE proponent of going on cruises. I wrote an article a while back about why going on a cruise is the best vacation bang for your buck, and I stand by it. I am going on my 3rd cruise in November!!! So excited!! And I already have it paid for!:)

    • I know! I think that’s what has been pushing me. I know it shouldn’t be sitting in savings.

      This will be my 5th cruise actually, we LOVE cruises. It will be the first one we are taking our kids to. Since we don’t drink they are extremely affordable.

      Have fun on your cruise in November!! I’ll think of you when it’s 30 degrees here in Maine 😉

  • As a fellow entrepenuer, I love your system and find it very similar to my own. Calculated risks are the key!

    Oh and your friend who only has a 1 month emergency fund is nuts :).

  • Absolutely, being self employed is the scariest thing in the world. But you seem to have a secure nest egg. its indeed scary

    • Well maybe not the scariest in the world! But I agree it’s pretty scary. But it’s a good scary. 🙂

  • Jamie I really like how you’ve broken this down and shared it too. I am positive your cruise WITH your kids is going to be amazing. And with the family along for the fun it’ll no doubt make it even more relaxing.

    • It’s funny you say ‘more relaxing’. I don’t plan that any of my trip will be relaxing, that way if it is, I’ll be excited! But it will be fun, if not relaxing. 😉

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