Purse Strings Approved Professional Blog Series
Budgeting for Time Off When You’re Self-Employed
By: Guli Fager, CFP®, MPH, Financial Advisor at Toler Financial Group, LLC
Being your own boss is a dream for many people. The flexibility to set your schedule, no supervisor to answer to, and freedom to do things the way you want to are compelling reasons to pursue self-employment. But one of the trade-offs that people make when leaving a job with a benefits package is that they must create—and pay for—those benefits on their own.
In our webinar series on Financial Self-Care, we described how self-employed people can structure personal income, retirement savings, and insurance, which are critical pieces of the “benefits package” you want to provide for yourself. Another piece of the puzzle, one that can seem intimidating, is figuring out how to actually “budget” for time off. Whether you want to be able to attend conferences, go on vacation, or take time off if you get sick, ensuring you have enough income to cover time away from work is especially important.
Many jobs offer paid time off for federal and other holidays, sick days, vacation, continuing education or professional development events, bereavement, family leave, any number of situations that allow you to continue to get paid even if you don’t come to work. How do you create that safety net if you’re the employer? Here are a couple of strategies.
How Much Time Do You Want Off Each Year?
Figure out how much time off you want each year. Is your favorite conference 5 days? A weeklong vacation at the beach with the kids? Do you reliably get a cold that keeps you in bed for a few days each winter? Think about the last 12 months and how much time off you took, and whether those events are likely to happen again. Let’s imagine that you want to budget for 4 weeks away from work. That means your business needs to generate 12 months of revenue in 11 months.
How Do You Create An Additional Month Of Revenue?
There are two ways to approach this. One is to assess your fees and ensure they are set appropriately to cover time off. This isn’t greedy—whatever business you’re in, your clients want you to be at your best, and time off to relax, heal and learn is critical to that. I’ve managed budgets for organizations and “fringe” benefits—the amount allocated over and above staff salaries—is typically 20-30% of each person’s salary, to cover time off, insurance and retirement benefits.
If you don’t think you can change or increase your fees (if, for example, you’re in network with insurance companies and have a contracted rate) and don’t want to see more clients, the second approach is to review your business and personal living expenses and see if you can reduce them so that 11 months of revenue will pay for 12 months of expenses. If you can reduce business expenses, you can pay yourself more in profit. If you can reduce personal expenses, the income you take from the business will cover the time you aren’t working.
What Happens If You Get Sick Or Hurt?
The last piece of the puzzle is protect yourself in situations that may lead to extended periods of reduced or no work due to illness or disability. While many of us may plan to take sick day here and there throughout the year due to a minor illness, serious illness can occur unexpectedly and make you unable to work for an extended period.
What if you are too hurt or sick to work for months or years? The loss of income can be devastating to your personal finances. Disability insurance is a critical part of your safety net as a self-employed professional – it would supplement any Social Security disability you might qualify for to leave you with a reduced, but manageable, income to live on. The leading causes of expended time away from work are neuro-muscular and auto-immune illnesses, though cancer and other diseases certainly come into play. Women are more likely than men to experience a disability that hampers their ability to work, and if you are self-employed, you don’t get paid for time away from clients.
Final Thoughts
Financial planning with self-employed clients allows us to figure out together the best way for business revenue to flow to your personal cash flow, accounting for time off as desired. Included in our financial planning is an independent insurance analysis, with a search of carriers to find the best disability insurance policy to protect them. We are committed to our self-employed clients having a great benefits package! We would be happy to meet with you for a free consultation to discuss any questions you may have.
Guli Fager, CFP®, MPH
Financial Advisor at Toler Financial Group, LLC
As a teenager Guli worked summers for a financial newsletter and read the Wall Street Journal. But in college, she didn’t herself reflected in the world of finance and she went in a radically different direction—into sex ed.
But it turns out sex and money aren’t that different—both things are extremely important in our culture and yet taboo to talk about. Shame, embarrassment, and secrecy can make it difficult to be honest about them and to make good decisions regarding our sex lives and finances. With nearly 20 years of experience as a sex educator, coach and trainer working with folks of all ages, she brings the same commitment to transparency, fun, and evidence-based learning and behavior change strategies as a financial advisor.
Check out the background of these financial professionals on FINRA’s BrokerCheck
This website is for informational purposes only and does not constitute investment advice nor a solicitation to buy or sell any security or engage in a particular investment strategy. Toler Financial Group provides advisory services through Rossby Financial LLC, a Registered Investment Adviser with the U.S. Securities and Exchange Commission. Information contained herein is provided by sources deemed to be reliable; however, accuracy and completeness cannot be guaranteed. All investing involves risk, including the possible loss of principal. Results are not guaranteed, as past performance does not indicate future results. Rossby Financial LLC and its affiliates do not provide tax or legal advice. Advisory services are offered in all 50 states.
Toler Financial Group does not provide tax or legal advice.
