In 2009, I lost everything. My career, relationship and home. It's amazing how quickly unemployment can knock you down and change the entire trajectory of your life. I went from earning and saving good money to waking up on my 30th birthday living on my sister's couch.
My credit card debt ballooned to $35,000 and my 802 credit score plummeted into the 500's because I couldn't pay bills. Fast forward five years later and I've not only dug myself out of that hole, but I built a business on the way up. I'm currently a speaker, bestselling author, and financial educator running an internationally recognized brand, but before building a successful business I hit rock bottom.
Here are some money lessons I learned from the struggle:
Always Save for a Rainy Day El Niño
There's no way to predict long-term unemployment, but you should always prepare for it with an emergency fund. I lived well below my means to save money before losing my job. Thankfully, I had some savings to live on.
My first "real" job at 21 was as a teacher's assistant. It only paid $12 per hour, so I lived with my parents to stack coins. I found a modest yet affordable rental in New Jersey with a roommate (my sister), that cost just $1100/month, $550 per person including utilities. As my income steadily increased, I kept the same standard of living and a strict bi-weekly budget. I used envelopes filled with cash to divide my pay into categories: bills, savings, entertainment and grooming.
I lived off one paycheck and saved the other.
By 25, I had $40,000 saved in cash.
Live Richer Lesson #1:
Nothing in life is guaranteed, so establishing good saving habits no matter how much you make is invaluable. Downgrade your life, if necessary. This could mean cutting cable, getting a roommate or keeping your gel manicure on for a few extra weeks.
How To Live This Lesson Now:
Begin to set aside a few dollars from each paycheck in a savings account. Don't have the discipline? Start with Digit. This free resource studies your financial moves and automatically transfers money from your bank account to your Digit Account. They will send you daily, fun texts with updates of your balances and transfers. You can choose to save more, pause savings or withdrawal your money via text as well. Your money is FDIC insured and they have a no-overdraft guarantee. Oh, and they do it for free!
Nothing Good Comes Easy
Before joblessness, my savings game was on point, but my investment game was lacking. I made one crucial mistake that put me in a world of debt and made unemployment overwhelming. At 27, I asked a wealthy friend of mine to teach me how to invest and he pitched me a genius plan. We would buy high-end clothing in New York and ship it to Paris to sell in one of his stores.
My return was supposed to be $1,200 per week for two years. Yup, you read that right. I thought I was going to make $62,400 per year shipping clothes across the pond. I was so excited about making racks on racks that I applied for new credit cards and took out cash advances totaling $20,000.
We sent our first shipment to Paris then I never heard from him or received any money. It devastated me at the time, but I can appreciate the lesson. First, be careful who you trust. Second, if a plan sounds too good to be true, believe it. Last, hard work and passion are what will pay off tenfold, not a get rich quick scheme.
Live Richer Lesson #2:
There's no such thing as easy money. When my "friend" aka The Thief shared his get-rich-quick scheme with me, I should have ran for the hills. Looking back on it, it didn't make sense. Rarely in life do you make a ton of money without knowledge and work.
How To Live This Lesson Now:
If you're interested in investing, you first have to invest in knowledge. Two financial books to help you get started are: The Richest Man in Babylon by George Clason, Stock Market Investing Mini Lessons For Beginners: A starter guide for beginner investors by Mabel Nunez.
Odd Jobs Add Up
Losing my job and the implications of bad investing had me down and out. At 30, I was directionless and living off the little savings I had left. I didn't know how to start over after losing so much. Back when I was a teacher, staff members took notice of my money management skills and looked to me as a financial resource.
Looking for something to keep me busy, I began volunteering at several nonprofits teaching financial education. I networked like my life depended on it and asked nonprofits to refer me to other organizations for paid opportunities. Since I couldn't find 9 to 5 work, I did a bunch of side hustles to make money. I took on one-on-one financial consultations, babysitting and tutoring.
Sidebar: Don't discount volunteering. I met my first clients for The Budgetnista by volunteering. By combining volunteering and sharing me in action on social media, I was able secure a new client each time I spoke and posted myself speaking online. In the beginning, 80% of my business came from the posts I shared on Facebook. So use your social media network to showcase your skills and increase your income.
Live Richer Lesson #3:
If there's no place for you in the workforce, make your own way. Use your experience and passions to offer a product or service that someone finds valuable. Hustle even if you have a full-time job. Multiple streams of income will lead to financial security.
How To Live This Lesson Now:
- Use Your Degree. If you have the education, put it to use. You can charge more money for a service when you're an expert in a field. Think about how you can shape your education into an extra source of income.
- Do What You Do For a Living. You can hit the ground running with your side hustle if you have work experience in the industry. There's no learning curve and you have a resume that proves you know what you're doing.
- Activate Your Passion. Start charging for things you already do for free. You already have an established clientele who like your work and you can use them to spread the word.
- Negotiate a Raise. Start to collect all of the amazing value you bring to your job. Put it together in a file. Make sure you monetize your value. Example: The decision you made to do _________ is saving the company $10,000/year.
Take Ownership of Your Situation
At first, I didn't want to face my credit card debt from the bad investment even when I started making money again. I felt paying any more than the minimum payment was admission of guilt and I didn't want to take full responsibility.
Only after owning the mistake and forgiving myself was I able to start crushing the debt. I transferred my credit card debt to cards that offered introductory 0% interest rates, so the money I paid largely went to principal instead of interest. (Use Magnify Money to help you find the best balance transfer cards.) If I had continued to sit back without taking ownership, interest would have increased my debt exponentially.
Since I've been through the struggle, I understand how disheartening financial missteps can be. You feel destitute, desperate and hopeless, but there is a way out if you face the situation. Open the bills, pick up the phone for collectors and form a plan. Sure, it won't happen overnight, but you have the power to change your situation.
Live Richer Lesson #4:
Have you made financial mistakes in the past? Are you currently making financial mistakes? Will you probably make financial mistakes in the future? Yes?! Well, so did Will Smith, Rihanna, Suze Orman, and me!
Sometimes you are unable to move forward financially, not because you don't make enough money, not because you don't have the resources, and not because your situation is un-repairable. The truth is, you have yet to get over your financial mistakes if you want to move onto greener pastures (pun intended). Financial forgiveness is one of the first keys to becoming financially healthy.
How To Live This Lesson Now:
- Admit to Yourself and Take Ownership. Confess; say "I messed up when I __________". Feel free to substitute the word "messed" with your verb of choice.
- Identify the What and Why (Be Very Specific). Take a break from beating yourself up for a minute and clearly identify your mistake and why you made it.
- Tell Someone You Trust. OK, so this may be a tough for you, but tell a trusted confidant. Doing so will allow you to let go of the shame, begin to forgive yourself, and ultimately work on a solution.
- Focus on a Solution. So the truth is out, and it's time that you focus on what IS, verses on what ISN'T.
- Plan, Then Work the Plan. Once you've drafted your list of possible solutions, pick one and begin crafting a plan. Not sure how to start or what to do?
Using these four lessons, I now run a successful business, and no longer struggle financially.
Tiffany Aliche, better known as "The Budgetnista", is America's favorite financial educator and she's here to answer your money questions.
Featured image by Getty Images
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Oh, the infamous tax season!
For some, it's a time to celebrate the possibility of having a little extra in your bank account to
save spend at your leisure, but for the self-employed, dealing with taxes can be a bit of a headache. Unless you're a stickler for paying your taxes monthly or even quarterly, you may have gotten hit with the possibility of emptying out your life savings (because of course you should have some!) in effort to keep the IRS from hunting you down.
I'm often asked about how to stick to a budget and save for taxes as a person who's self-employed. For many entrepreneurs, there is no guarantee that each month will yield the same profit as the one before. So what do you do when your paycheck fluctuates just as much as the stock market?
As a self-employed sista myself, I know just how hard it is to budget and save with sporadic income. The first year of self-employment was rocky for me on the money front too, so you're not alone. I'm happy to tell you budgeting while self-employed is much easier now that I have a system in place.
Here are the tips I recommend to help you budget while self-employed.
1. Add Up Your Basic Needs
The basic needs include food, shelter and anything that keeps you alive. Drinks with your girlfriends or Friday night takeout are not basics. They do have a place in your budget, just not here. Add up all of the bare essentials and it'll give you how much income you need to make from your business (after business expenses like taxes) to maintain your life.
2. Use Percentages to Budget
People that get a regular check can allocate a certain amount of money to each line item of their budget. That doesn't work for us self-employed folk because our income is variable. Use percentages instead, here's the breakdown I use:
- 40%: Expenses - Both essential and nonessential expenses.
- 30%: Taxes - As advised by my accountant due to business expenses. Remember, every tax situation is different. You need to speak with a tax advisor first before choosing your own tax percentage. This all depends on your tax bracket and how much you spend on business expenses. Make sure you're setting aside a percentage of your income each time you get paid to avoid a future tax bill you can't afford.
- 15%: Retirement & Investments - It's critical that you set aside money for your future self, especially since you don't have a job sponsored retirement plan.
- 10%: Give - Donating and giving back. I believe to whom much is given, much is required. I've also found that giving activates abundance is all areas of my life, but this is a personal choice, so do what you feel is right.
- 5%: Travel - Leisure - Traveling is important to me, so I give it its own budget category. Decide what category is important to you. Then each time you get paid (big payment or small), allocate your income based on the percentages you choose.
3. Keep Multiple Accounts
Keep your money separate. It's easier to keep track of your funds this way. Setup and label a few online bank accounts for taxes, bills, everyday spending and savings goals. (You can find online accounts with no fees at MagnifyMoney). Divvy the money up into each account when you get paid.
The account for spending can be your regular checking account. Your bill money should be in an account you can't touch, same with your savings and tax money.
4. Pay Your Quarterly Taxes
I've been asked about saving for taxes specifically, so I'm touching on it a little more in this section. Each fiscal quarter self-employed workers are supposed to make estimated quarterly tax payments to the IRS. I'm going to be honest with you, it's easy for solopreneurs to spend money that trickles in and put off saving for taxes entirely. This never ends well. Believe me. I didn't stay on top of quarterly tax payments my first year as an entrepreneur. Then when tax season rolled around, I had to scramble for money to pay my tax bill. To say it was stressful is an understatement.
Now I consider quarterly tax payments a godsend. You can't spend tax money if it's already sent to Uncle Sam. Commit to the percentages we talked about above. Pay your taxes in smaller installments to avoid a huge tax bill later. You'll be thankful you did.
5. Stockpile Excess Cash
Moving on to the perils of feast and famine. Money won't come in for weeks and then a $10,000 check will appear mail; that's the life of an entrepreneur. My business is the busiest during summer months, so I work hard during that time to stockpile cash in a business savings account. This way, I don't have to panic during the winter when the checks slow down. Instead, I use the money from my savings account to pay myself. If you have a peak season make sure you're putting in work and saving large windfall payments that come in.
6. Give Yourself a Paycheck
You may wonder where your income disappears to each month right now and that's okay. Get serious about dispersing your income from each client into your budget categories like we discussed, and cut back on nonessentials so you can start saving more. Your ultimate goal is to get to the point where you can pay yourself a “regular" paycheck. Once you have enough cash in your business account to give yourself wiggle room, pay yourself a weekly or biweekly check from the savings. This way you're no longer at the mercy of irregular checks from clients.
In closing, Sista girl… It's a challenge to budget in the traditional sense when you're self-employed, but it can be done. Good luck!
Have more money questions? Ask below! I'm here to help you to live richer.
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