So you want to go freelance? Here are some tips
MANILA, Philippines - Ditching the office, the monotony and especially your boss, in favor of going freelance may seem like a good idea when you're tired and frustrated.
But that freedom comes with a price and if you're not careful with handling your own money, you may find yourself begging for the consistency and safety of being a regular employee.
On ANC's "On the Money," chairman and chief executive officer of Personal Finance Advisers Corp. Efren Cruz, shared some tips on what you will need in order to successfully make that leap towards self-employment.
According to Cruz, one has to ensure that he has enough funds for what he called, "the permanent working capital," which includes both household expenses and business expenses.
"It is like the blood that runs through your veins," said Cruz.
He also warned that those who would like to become their own boss should be able to pay for these expenses, especially the ones for employees and supplies, without relying on revenues, which are inconsistent in nature.
"In case they don't come on time [revenues], you should also have a sort of emergency fund for your household needs and for your business," Cruz suggested.
Borrow just enough
But what if you don't have enough money just yet, but you can't stand working for your boss anymore?
Cruz quipped that borrowing the funds needed for your freelance business from banks would just result in you "working for them and not for yourself"
"At most, borrow 50% of the capital you need," he said.
Question your "must-spend"
Without the help of regular income, freelancers should be able to cut down their expenses with respect to their earnings.
Cruz suggested that freelancers divide their expenses into a "must-spend" and a "may-spend," then compute the earnings they need in order to pay for these expenses plus taxes.
"If you think you can't earn that or are not earning that, then just go back to your expenses," he said.
"It's easier to cut the may-spend but if it still doesn't work out, then you have to question your beliefs in the must-spend," Cruz added.
And because people can't possibly do their freelance work forever, Cruz advised them to keep the "cash-flow" moving.
"Whatever earnings you have, reinvest it. You don't have to reinvest it in the business itself, you can find other businesses or you can find investment securities to make sure that your money keeps on working till the day you die," he said.
But warned that the funds that are going to be used for investments should be from unrestricted earnings.
"The funds shouldn't come from debt."
Don't forget taxes
According to Cruz, one of the common mistakes that freelancers make whenever they start out is that they tend to leave taxes out of their computations.
"If you are selling to corporations, they would normally withhold taxes from you...But many people believe that since taxes are withheld, [they] already paid their taxes," Cruz said.
Freelancers that are earning more than P720,000 in a year should pay the Bureau of Internal Revenue a professional tax of 15%.
"You pay your taxes quarterly," reminded Cruz.
And lastly, say goodbye to company benefits
Be prepared to lose company benefits like free transportation, uniforms, paid vacations and sick leaves because as Cruz said, "these are all gone when you're self-employed."