00:00:00 ◼ ► Welcome to Under the Radar, a show about independent iOS app development. I'm Mark Orment.
00:00:04 ◼ ► And I'm David Smith. Under the Radar is never longer than 30 minutes, so let's get started.
00:00:09 ◼ ► So today we are kind of doing the part two to last week's kind of, I don't know, going indie 101 or going indie the spreadsheet way
00:00:22 ◼ ► considerations around taxes, and considerations around income. So if you haven't heard that,
00:00:27 ◼ ► go listen to that before you listen to this because those are more important in some ways and more foundational to kind of what we're
00:00:35 ◼ ► But really what we're going to be unpacking for the rest of this episode is trying to think through all of the different
00:00:41 ◼ ► expenses that you are going to have. Once you kind of work out at a vague level what your income goals may be,
00:00:49 ◼ ► and then you have to like work out, well, what are the other expenses when suddenly if you're self-employed and you're becoming,
00:00:55 ◼ ► you know, suddenly becoming responsible for all of the expenses associated with running a business,
00:01:00 ◼ ► what are those going to be so you're not caught out or surprised by what they may be. And
00:01:05 ◼ ► some of these you may not have thought of, but the one that we're probably going to start with that you almost certainly have thought
00:01:24 ◼ ► your health care. Either they're paying for it themselves or you're paying for it, but they're choosing it and it's a group plan.
00:01:39 ◼ ► It's not this kind of... It's not like choosing your business card provider or choosing, you know,
00:01:46 ◼ ► which computer you buy. Like those decisions, while important for your business perhaps, like aren't
00:01:52 ◼ ► nearly as personal and impactful to things that are the new. This affects your family and it can affect, you know, your family in a
00:02:16 ◼ ► You can build it up to be something that's a bit more emotional or a bit more scary. Like, you know, right now
00:02:20 ◼ ► my employer just takes care of that. Now I have to do that. It's like, well, hey, you're kind of already paying for it now.
00:02:26 ◼ ► Because you're, you know, it's not like your employer gets their health insurance for free. Like they're paying for it for you
00:02:37 ◼ ► So at least one advantage of paying for your own health insurance is you can, you know, tailor and choose and
00:02:53 ◼ ► it is just a number. It is something that you now have to choose and make that those choices can be complicated and, you know, kind of
00:03:05 ◼ ► I found for myself that it made it a lot less scary, a lot less problematic, that I could just say like, okay,
00:03:11 ◼ ► I'm gonna spend this amount of money on health care. I put that into my budget. I put it into my spreadsheet.
00:03:16 ◼ ► It's just covered. It's taken care of. I don't have to think about it or worry about it because, you know, ultimately
00:03:26 ◼ ► you know, in your personal life in terms of the different depending on the kind of insurance you have.
00:03:40 ◼ ► But it's not this big scary thing. It's mostly it's just an expense and it's pretty expensive.
00:03:47 ◼ ► But it's not anything more than just another number and just another budget item that you have to take care of.
00:03:58 ◼ ► I can't go indie because I would need to pay for health insurance or I wouldn't be able to get health insurance.
00:04:09 ◼ ► X extra dollars per month than what I might have originally thought because it has to pay for health insurance.
00:04:15 ◼ ► Because, you know, like as you mentioned, like, you know, right now like someone's paying, you know,
00:04:19 ◼ ► whether you're paying for part or all of it yourself or chances are your employer is paying for, you know, part or all of it.
00:04:25 ◼ ► You know, there's a lot that employers pay to have an employee that is not just the salary that you get.
00:04:32 ◼ ► And, you know, we started talking about this last week with like, you know, the employer half of a lot of these taxes
00:04:38 ◼ ► and other various, you know, employment taxes that you will have to either pay or pay some kind of alternative to now.
00:04:45 ◼ ► But also, you know, healthcare is part of that, you know, just office expenses. Like, you know, if they pay you
00:05:00 ◼ ► what kind of expenses they have to have employees. And so when you go independent, it's not that you
00:05:10 ◼ ► how much to charge for your consulting services, how much you how much income you need from products like stomach like
00:05:31 ◼ ► I remember early days and I was doing consulting I would sign a contract to do a work and the number like the income that
00:05:56 ◼ ► and this is just a rule of thumb that I found to be pretty helpful is to say like whatever that top of the line number
00:06:05 ◼ ► And so like it's not that I didn't I didn't just make in that example. I didn't make $20,000
00:06:12 ◼ ► I made $10,000 and that additional 10,000 is going to be going to all manner of things taxes, healthcare, office expenses,
00:06:28 ◼ ► you know, it's good there and the reason you're doing this is so that you can make sure you're charging enough because you know
00:06:34 ◼ ► ultimately if you don't then that's when things like healthcare can become problematic because you need to
00:06:47 ◼ ► your mindset about how much money you need to make also has to change because like your whole like if you've been
00:06:54 ◼ ► only employed by other people until now your whole life up until now you've had a certain amount of money in your head is like
00:06:59 ◼ ► what's like what's my salary? What's a good salary? What kind of salary do I quote need you know to
00:07:06 ◼ ► you you still have to make those kind of calculations the numbers just have to be higher, but and it's not that like you know
00:07:21 ◼ ► the idea of spending $2,000 a month if you are getting paid and you know regular middle-class job that sounds insane like that sounds incredible
00:07:35 ◼ ► thinking about it as the point of view of somebody setting prices for a business to know like okay
00:07:41 ◼ ► $8,000 a month of income to sustain what we need okay, then that's the number like you know
00:07:46 ◼ ► It's it's almost and you figure out how to do that. You know you kind of back solve you start with what kind of income?
00:07:56 ◼ ► How do I get there you know like a quick story here like when we first moved to New York?
00:08:07 ◼ ► You know just renting and I looked around and you know Tiff and I were early in our relationship
00:08:13 ◼ ► and we looked around the neighborhood we were living in which was a very expensive neighborhood and
00:08:18 ◼ ► All the houses were like a million dollars and so and sometimes even more than that for like a basic house
00:08:28 ◼ ► I initially thought well, I guess if a house is a million dollars. I guess I have to figure out how to make a million dollars
00:08:40 ◼ ► All sorts of things until I eventually rose like I've just moved somewhere cheaper, but like it's like that for a while
00:08:45 ◼ ► That's that was the right way to look at it. Which is like all right. Well. Here's the environment. I'm in
00:08:51 ◼ ► I'm in or I had this certain goal that I want to reach so rather than seeing it as this impossible thing that I can
00:09:00 ◼ ► How do I get there like how do I how do I afford a house the cost that much you know and yeah?
00:09:15 ◼ ► Back saw a little bit and instead something all right. What could I do to make $8,000 a month?
00:09:21 ◼ ► Yeah, so that it is just numbers like it's just that's why I love spreadsheets for this kind of stuff
00:09:26 ◼ ► You just kind of work it out backwards and one of their side note to and a lot of these expenses is
00:09:31 ◼ ► The one a nice thing about business expenses is that almost all of them are tax-deductible
00:09:37 ◼ ► So it's also just need to keep in mind that the you know if health insurance costs you two thousand dollars a month
00:09:42 ◼ ► It isn't two thousand dollars in the in the way that you would have had that money after paying taxes like there's
00:09:49 ◼ ► You don't want to go get carried away with like the discount that you're getting essentially by things being
00:09:55 ◼ ► Tax-deductible, but it is certainly something to keep in mind that a lot of these expenses are the the raw number is much bigger
00:10:06 ◼ ► Discounted it's like you getting you're paying you get like one-third off. You know all these a lot of these types of expenses
00:10:23 ◼ ► And there's two main ways that I think I've seen people use and I've to abuse both of these myself
00:10:37 ◼ ► Essentially in the United States you your employer is obliged to allow you to continue on your previous group
00:10:50 ◼ ► And basically you pay I think it's a hundred and two percent of the cost that the year the total cost that the employer was paying
00:10:59 ◼ ► Whatever that actually is and you can just sort of keep whatever the insurance that you have now
00:11:11 ◼ ► You know putting together your spreadsheet about what going independent is going to be like this is probably going to be
00:11:18 ◼ ► Your it's often going to be your cheapest version because group insurance is just cheaper than individual insurance well sometimes sure
00:11:28 ◼ ► And it's a really easy baseline because the number of working out what your the cost of your current plan is
00:11:33 ◼ ► Is should be relatively straightforward to you in terms of your employer should be able to either
00:11:47 ◼ ► But like you can keep that and that should be able to get you going you can't do it indefinitely
00:12:33 ◼ ► It takes the process takes a little while so if you're thinking about this process like you can it's probably wise to
00:12:38 ◼ ► Go through that and just understand what all the things you're gonna have to do like you provide a lot of data
00:12:58 ◼ ► Different plans might make sense and I will say it's kind of nice that I've been able to as since I've been self-employed
00:13:16 ◼ ► Having the process of having children in the US is very expensive and so we had very good insurance
00:13:23 ◼ ► As we've transitioned out of that phase like I've been able to transition to slightly less robust insurance
00:13:32 ◼ ► It was before and it is kind of nice to be able to choose that but you know you go through the marketplaces
00:13:51 ◼ ► copay version of it, but you just kind of to choose and decide pick a plan and you'll you know tell you it's just like
00:13:56 ◼ ► It's weird, but it's kind of like just like you're just shopping for anything else online like you'll get a cost
00:14:05 ◼ ► It's it's way easier than it used to be like back in it when we had to go to brokers and everything and and you
00:14:15 ◼ ► There are a lot more things you had to worry about of like if you picked the wrong kind of plan
00:14:25 ◼ ► Whereas with the ACA it normalized a lot of that and it put in a put in place a lot of like minimum guarantees
00:14:31 ◼ ► Of levels of coverage such that it's a lot less stressful than it ever was now to shop for health care
00:14:42 ◼ ► And then you just buy it and now you have a number you just put that in your spreadsheet and move on and you know
00:14:50 ◼ ► To do you wouldn't because from a health care perspective like it isn't really it's it's it's expensive, but it's it's not difficult
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00:16:10 ◼ ► So beyond healthcare, there are probably a few kinds of insurance that you may need to think about these depend
00:16:16 ◼ ► You may want to have some kind of professional liability or errors in emissions insurance
00:16:31 ◼ ► Doing a big consulting project and the people you're consulting with will one of the clauses in the contract
00:16:43 ◼ ► Depending on your state you may need to have things like workman's compensation insurance or unemployment insurance
00:16:48 ◼ ► Usually those only kick in if you have employees that aren't yourself or yourself and your spouse or something like that
00:17:00 ◼ ► It's having having any other full-time employees like not not just paying contractors here and there
00:17:06 ◼ ► but if you have any of full-time employees it massively complicates a lot of these factors and
00:17:23 ◼ ► And certainly is one of the benefits of this type of work is that you probably won't need
00:17:28 ◼ ► Employees at least to start with in the sense of the work you're doing is just you know
00:17:37 ◼ ► You're not it's not like you need a production facility that you're like making widgets in and so hopefully you can avoid it or at least
00:18:03 ◼ ► You could potentially defer this for the you know, the first couple years of being starting self-employed, but that's up to you
00:18:13 ◼ ► So it's something that you have to take care of yourself and if it's something that you would like to contribute to
00:18:17 ◼ ► In your as you're setting up your business, you know, you have a lot of choices available to you
00:18:22 ◼ ► I think the ones that most self-employers would do is the simple IRA or a SEP IRA seem to be the two that you will likely
00:18:33 ◼ ► Interestingly depending on your situation. They may actually be able to consume a be able to contribute a lot more than you would have from a traditional
00:18:46 ◼ ► And you're you're going to be setting up the plan yourself like you'll be going to you know
00:18:51 ◼ ► a investment bank or you know Vanguard or somewhere like that and you'll be setting up the accounts and making the
00:19:11 ◼ ► You can also do things like hire a financial planner to talk you through a lot of this stuff
00:19:15 ◼ ► Especially when it comes when it comes to things like long-term retirement savings and things like that that that often helps
00:19:19 ◼ ► I'm sure you know, whatever accountant you have for your business to do your taxes, which you are definitely now doing
00:19:33 ◼ ► The limit this past year I believe was fifty four thousand dollars that you could contribute total now
00:19:40 ◼ ► so for instance, first of all, if you have employees the whole thing is messed up don't have employees, but if you
00:19:54 ◼ ► So if you want to contribute fifty four thousand you had to make like two hundred and you know twelve thousand or whatever
00:20:20 ◼ ► Yeah, and the other advantage to this just as a side note there is it's nice that you have more so much more control as
00:20:27 ◼ ► with so many of these things over this and so it isn't the kind of thing where you have to like on January 1st decide what
00:20:44 ◼ ► You can make a larger retirement contribution that year so that you can lower your tax liability
00:20:50 ◼ ► If that makes sense, like there's lots of cool things that you can do because you have flexibility because you're not just you know
00:20:57 ◼ ► One of a thousand employees and so you had you actually have the ability to make these choices
00:21:03 ◼ ► It is not too late to do this for this past year because you can contribute to at least a SEP
00:21:10 ◼ ► I think up through up until tax day up until April or something. So yeah, so you like you can do it for the previous year
00:21:15 ◼ ► So so definitely like if you're into this for this year ask somebody about it ASAP because it isn't too late and but yeah
00:21:28 ◼ ► You can either skip it and not contribute or you can contribute a smaller amount than you otherwise would have if you had a fantastic
00:21:33 ◼ ► Blowout year you can contribute as much as you possibly can, you know, it's it really puts everything in your hands
00:21:40 ◼ ► Other expenses so you'll sort of get into things that like just otherwise your employer would have typically covered for you
00:21:47 ◼ ► So things like mileage to or from consulting clients potentially those type that type of thing or travel for work
00:21:55 ◼ ► To conferences any educational expenses you may have so if you need to take a course or a certification or something like that for your
00:22:03 ◼ ► That's now like a you know a business expense and you'll be deductible from your income
00:22:15 ◼ ► That's now gonna be you paying for that and so working out, you know, what that costs are associated with that whether that still makes sense
00:22:27 ◼ ► You know pencils and paper or if that's the business cards and letterhead like I mean depending on what kind of business you have
00:22:36 ◼ ► But that's now something that you're gonna have to take care of yourself. So you're gonna buy your own coffee for the break room
00:22:44 ◼ ► Much off their terrible drip coffee anymore. So I should get a water cooler installed on my office
00:22:50 ◼ ► There you go. And that way you can have conversations with yourself there on a regular basis. Those are probably expensive
00:22:55 ◼ ► Can you can you have a guy come and like bring those giant glass did those giant jugs to it?
00:23:04 ◼ ► They would be happy to they would be happy to bring the giant five-gallon drums into your house it and set it up for you
00:23:12 ◼ ► You mean just a tap with a filter on it might be more effective for probably just a guess
00:23:23 ◼ ► Your computer any testing devices that you now need in terms of you know, I mean depending on the kind of work you do
00:23:29 ◼ ► You may want to have a collection of test devices. That's now your responsibility to purchase
00:23:40 ◼ ► But I always want to mention it in this kind of topic is make sure you also be like you you're funny
00:23:45 ◼ ► Your first purchases was probably gonna be if you don't have it already like a good backup hard drive
00:23:57 ◼ ► Your computer dies and you suddenly don't have that project that your your client has been paying you for six months to build
00:24:04 ◼ ► Like that is a tremendous problem. So you need to make sure you have a very good backup situation
00:24:09 ◼ ► both in terms of physical like having a like I do a daily mirror of my main machine in addition to a variety of cloud backups, but
00:24:26 ◼ ► That has very different needs and if you're sitting in one for eight hours a day. Yep. Yep
00:24:30 ◼ ► You'll have a variety of kind of home office things like and I will say don't go don't necessarily go crazy right away
00:24:37 ◼ ► It's it's like we've as if you listen to us talk for long enough you understand we take these things very care like seriously like
00:24:44 ◼ ► Having good good ergonomics make sure you have a keyboard and a mouse and things that work
00:24:47 ◼ ► but like if it's gonna be hard to get started like, you know, you these are the kind of things that can be nice goals for
00:24:57 ◼ ► These are like sitting things that you can certainly you don't need to do these right away in the same way like I for
00:25:02 ◼ ► My for the start with like I didn't have that great of a laptop or that great of a computer
00:25:14 ◼ ► That's probably unnecessary like you can kind of get started with what you have and then grow and develop as you have need
00:25:22 ◼ ► You're also gonna probably have to buy some software like things that your employer may have previously provided
00:25:32 ◼ ► transmit or tower like any of the kind of utilities and tools that are just sort of part and parcel of
00:25:59 ◼ ► You may probably have any kind of web service. You'll probably have a count to like pingdom or hover
00:26:06 ◼ ► Like you're gonna be a variety of these kind of services and while any one of them individually is may not be that expensive
00:26:17 ◼ ► So make sure you have them in the spreadsheet and know what they're gonna know what that what kind of expenses you're gonna have to
00:26:24 ◼ ► Also, make sure that the licenses or the service plans that you are getting for things allow business use most of the things we've mentioned
00:26:34 ◼ ► Services or some more some software packages where like if you're using it for business use you're required to pay more to be compliant with
00:26:45 ◼ ► But but those do still exist sure or at least, you know, make sure that you're being up
00:26:50 ◼ ► Above board with all of these that these types of things exactly like yeah, like this is not a place to like pirate your copy
00:26:55 ◼ ► Of Photoshop like you can't know you can't do that with business stuff because suddenly you're the liabilities
00:27:00 ◼ ► That you're putting yourself under and your clients under and things suddenly become very problematic
00:27:05 ◼ ► So like in general good advice like be above boards like understand that this is a business treated as such
00:27:15 ◼ ► You know into your spreadsheet into your expenses like it shouldn't be a problem in that regard
00:27:24 ◼ ► Professional services. So you're going like we've talked about many times. You're probably gonna need to have
00:27:30 ◼ ► Either a lawyer in an accountant or just an accountant or some kind of in terms of some type of professional
00:27:54 ◼ ► An icon for your business if you think that's important or whatever like you you're these are kind of professional
00:28:00 ◼ ► Services that you're going to need to suddenly start paying for that. You just need to keep into mind and they're not typically crazy expensive
00:28:06 ◼ ► It's just an expense that needs to have it's I have it have a line item and be considered
00:28:13 ◼ ► This all sounds like a lot and it is a lot when you when you've never done it before but you know
00:28:21 ◼ ► Renting the place you live to owning a place that you live or the transition into be becoming a parent if you've done that
00:28:30 ◼ ► Beforehand you might not have fully appreciated like all the things that were needed that were being done for you or that you that weren't
00:28:39 ◼ ► Millions of people do this millions of people have figured this out before you many of which you are smarter than
00:28:49 ◼ ► experience with these things than it has to do with skill or intelligence or anything else like if
00:29:00 ◼ ► it's probably just a good indication of whether you should that like if the if the thought of
00:29:10 ◼ ► Maybe being a regular employee is for you, but if you can get over that like obviously we both recommend it
00:29:23 ◼ ► You know this episode in the previous one is just like totally blown your mind then like, okay