Tip

As a self-employed person, you have to keep an eye on many costs that you have little or no need to worry about as an employee.

• You bear the financial risk on your own, and you have to insure yourself, i.e., take care of health, pension, care, and social security contributions.
• The minimum contribution to voluntary, statutory health insurance is high, and private health insurance quickly becomes expensive in old age or with family. In addition, you often have to advance medical costs, which puts a strain on your cash flow.
• One of the most common stumbling blocks for the self-employed is a tax payment that often comes years later and is much higher than expected. A critical tip: set up your own bank account for tax payments, into which you always pay 30% of your roughly estimated profit. You should also report any drop-in profits directly to the tax office, as the tax authorities will calculate your tax burden based on your profits in recent years.

Sample calculation for living expenses

After you have made the calculation: Is it about as much as you earn (net) per month today? It’s probably more rather than less. This means that your previous income is insufficient for your desired lifestyle and that you’ll either have to earn more net income than today or financially adjust your desired lifestyle.

If it is substantially more, first check whether your plans are essential at the planned level and in the near future. You should have a realistic income target so that you don’t raise the bar for your independence too high. Remember that your income can increase in the next few years if you are enthusiastic about a job and your business grows. If you are not in a high-paying job and your previous income has been sufficient for your life, aim for a similar income for the next two or three years.

If you are in a well-paid job today – one that demands long days, weekend work, loads of responsibility and stress – consider an acceptable and feasible lower income amount given significantly decreased burden, stress, responsibility, and health risks.

Wrap your head around the value of having more time for your family, yourself, and your hobbies. What does it mean to you? What is it worth? Everything in life has a price. You’ve already established the costs associated with your high income. So, eliminating those costs means paying the price of a lower income.

Suppose this isn’t possible because you have so many financial obligations. In that case, I strongly recommend first establishing whether you cannot and do not want to reduce them, for example, by selling property to pay off debts. Even if this change’s cost means financial loss, no money in the world can outweigh your health and your lifetime experiences.

How much money do you need per day? To calculate the number of actual working days per year as a self-employed person, we have to deduct – depending on your business model – holidays, continuing education, holidays, sick days, etc.

Let’s assume that of the 365 days; you don’t work on weekends (104 days), public holidays (between nine and 16 days), holidays (25 to 30 days), in case of illness (about five days), and for continuing education (about five days). That leaves 211 days per year or, on average, 17.5 days per month.

That results in a required daily net income of:

$1550 ÷ 17.5 ≈ $89 /day

Now increase the amount by your average tax rate to calculate your necessary gross income:

Gross income = net income x (1 + tax rate in percent ÷ 100)

Example of required net income (at a tax rate of 45 %):

• per year 12 x 1550 x 1.45            = $26,970
• per month 1550 x 1.45                     = $2247.50
• per day 89 x 1.45                          = $129.05
• per hour 05 ÷ 4                        = $32.14  (for four hours/working day)

With this exercise, you now know how much money your business idea has to yield per hour, per working day, per month, and per year. This is critical information for many future decisions and for your business model, which you will soon develop in the 90-Day Program.