Wednesday, October 15, 2008

What’s Your Worth?

Over the next few posts I’d like to look at something I find many self employed people shy away from dealing with properly – figuring out how much you need to earn and how to earn it – essentially costing and planning production. I’ve shied away from this at times in the past, but experience has taught me the hard way that looking at this is to my benefit. And it’s not just good for self employed people, sometimes as an employee you better understand your $ worth and where you need to be aiming in order to get where you’d like to be if you follow through the relevant parts of these exercises.  So I’d like to share what I’ve learned

Sometimes our dreams may seem too dreamlike to us for us to think it’s actually possible to achieve them. This becomes especially so when the hard reality of bill paying bears down on us and we aren’t sure whether our dreamed income will come in time or even at all. This is where I find it helps to get stuck into some good old number crunching and be able to quantify things a bit.

Granted, until you’ve delivered to a client and handed an invoice, your income is just still on some level or other of speculation. Even then we all know the frustration of the odd unpaid invoice, but if you plan your speculation well, you should not fall far from your mark. In fact if you are being realistic and allowing for the unpaid ones, non-productive time as well as unforeseen things that cause delay, and most importantly, you follow through with production and delivery, you should be right on your mark.

I mainly fall short due to inaction, and that would be both in proper planning and in production. But on how to do the planning I have lots of experience so I can share some insights with you:

First of all, we want to figure out, how much you need (and want) to earn. You may think you know, but it can be quite revealing to really scrutinize this. And don’t rush this exercise – take a week or so to do it, as you’ll find you think of things you forgot as you go along.

I find the best starting point is to consider what your basic monthly expenses are. If you share bills with a partner, just figure out your share as best you can ; make a list and leave a few spaces for things you forgot. Use your old bills, chequebook, diary or anywhere you record your activities to help you identify them. Err on the high side – it’s always better to be overestimating when preparing for bills.

Rent/mortgage
Loans (car, hp, computer, etc)
Groceries
Transport (gas/bus)
Electricity, water, gas
Phone, cell, intenet
Cable / Satellite TV   
Insurance (house, medical, life, etc)
Savings plans
Clothing

Put figures to them and total them up. That’s one part done.

Now add the things you need during the course of each year, all the things that happen within in a year but are not monthly repeats. These are a bit harder to pin down, so leave a good few spaces to add in things as they come to mind:

Medical beyond what’s insured – alternative, etc
Dental beyond what’s insured
House and car repairs
School books
Major clothing – special occasions etc
Presents/kids parties/anniversaries, etc
Normal vacation activities – kids camps, a trip away

Now add the things you’d like each year – the things that will add quality of life to you and your family that you’d like to be able to pay for.

A second or better vacation
Piece of jewelry
Self improvement education
Another dog
An investment
Extra home improvements
etc


Estimate what they cost. Total them up.

Add these three totals together, this is your real base target income for the year. To be realistic you need to add what’s called a contingency to this total that allows for inflation, and the things you forgot or didn’t expect. I’d say add 20% to your total. This is what you should be aiming for.

Now take a moment and thnk – did you really include all the things that may happen like repairs, medical, etc? Have you skimped on your personal life quality goals? If you think you have, just go back and add in more or if you prefer, up your contingency. Be realistic – don’t set  yourself goals that are too far from where you are but at the same time, have faith that you can achieve a lot more than you probably think you can, so be reasonably genourous.

Okay, so that’s today’s exercise, but before we go there’s something you must note here – in the list of things you need to pay for, I didn’t put tools, materials, promotional items, advertising etc – these are business expenses, not personal expenses, so they are not part of what you need as personal income. When you are self employed it is best for a number of reasons if you treat yourself not just as the boss, but also the employee – not always an easy thing to do, I can testify - I’d have fired myself a few times by now! But basically, your business should pay you a salary to cover the amount you calculated – that’s what you’re aiming for. You are a business expense too.

In the next part we’ll look at it in the next instalment – how to estimate your earnings.

Alphabet Attitude for Today: Y is for YES! Say yes to life’s challenges and see them turn into opportunity.

2 comments:

  1. u said sometimes our dreams seem 2 dreamlike. if any one should know about that its me. i have soo many different dreams right now....things i wanna do in life. and it seems like i'll never have time 2 do them all. but anyway, someone who has no dreams has nothing right. so i'm holding onto mine in high hopes.

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  2. Oh, but you're young yet Jody, trust me, when you're young it seems like you won't have time, but if you live now to the fullest, it's amazing how much time will seem to open up for you for many, many years to come.

    Maybe you could start to create little dream-books - explore your dreams, sketch, plan, paste clippings, make notes about what you think you'd need to get that dream achieved - one book for each dream. Feed your dreams some health food:D and see how they grow healthy and strong.

    I suspect life will surprise you if you keep focused on getting the most out of everyday. So, you're right, do not let those dreams go!

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