I’m incredibly lucky to work with so many different creative entrepreneurs, and as my work continues I’ve seen a few mistakes that nearly every small business owner makes in some way. Here’s a breakdown of the most common mistakes I see creative entrepreneurs make, and action items on how to fix them!

1. Not knowing how much money you need to make.

So many small business owners ask, “Am I making enough money?” When we set our own salaries based on our independent work, it’s hard to know if we are “on track”. There’s no scale, or coworkers to trade information with. But the beauty of this line of work is that we set our own goals and build our own track. The only person you’re competing with is yourself.

Here’s my formula for figuring out your “enough” number:

1. Start with your “lean” household/personal expenses number. What are your absolute must-spends – things like rent/mortgage, health insurance, car payment/insurance, cell phone, internet, and groceries. This is the absolute minimum personal spend you’ll have each month or year.
2. Then add in the “extras” – things like eating out, Netflix, Amazon and Target, clothing, entertainment, and travel. This is your “reality” budget – you’ll want to make this much for your quality of life.
3. Add in your business expenses. How much does your business need each year to sustain itself?
4. Add in some padding for taxes (15-30% of your net income).
5. Add how much you’d like to save (for retirement, for a future down payment or investment, for travel, for a new car) each year.

And that’s your “enough” number! Was it lower or higher than you expected? As an example, here’s mine:

1. My lean household expenses are $20,000/yr.
2. My reality budget is $25,000/yr ($5,000 more than if I really needed to batten down the hatches).
3. My business needs $18,000/yr to survive.
4. I add $8,000 for taxes, which is a very conservative/padded amount.
5. I want to save $20,000/yr.

My enough number = $70,000. In 2021 I made a little over $90,000 so was able to save even more.

2. Not tracking your income and expenses.

Knowledge is truly power when it comes to money. If you don’t know how much money you’re making or spending, you have no idea where you are financially or what your goals should be.

I love tracking my money and I do this in a few different ways, including a manual Google Sheets spreadsheet because I like being hands-on. I realize for most people, this is a nightmare! I love Mint for personal (it’s free) and Wave for business (also free!). Wave is an incredibly robust program – you can not only connect your bank accounts and credit cards to categorize your income and expenses, but you can also pull reports and even invoice clients. There’s no way to get to where you want to go if we don’t know where you are right now.

I update this once a week, but recommend you do this at least once a month. You’ll be shocked at the things you miss by not doing this (for instance, this week I was updating my sheet and noticed a $200 auto-charge for a software I no longer use – I called right away, and they were able to refund it).

3. Not budgeting annually.

An annual budget flabbergasts most people when I suggest it, but I contribute the much of my financial success to making a plan annually. To me, it’s the only budget that makes sense on a fluctuating income. I know September is going to be a huge month, just like I know I might make $0 in July. Budgeting for each month doesn’t make sense if you’re a freelancer, a small business owner, or anyone who experiences ebbs and flows in income.

I use a Google sheet for my annual budget as well, and creating one is pretty simple.

1. Take all your monthly expenses, x12.
2. Account for all your annual expenses, personal (things like travel, Christmas, auto insurance premiums) and business and add them to the chart.
3. Voila!

Seeing the year as a whole and not my expenses month-by-month was a game changer for my financial life. I don’t stress during months I don’t make “enough” and I don’t splurge on months when I make double or even triple what I need. This goes for the business and for my personal budget.

4. Making peer-driven purchases.

I can’t tell you how many times I’ve had this same conversation. An event planner tells me about their travel plans to attend a fancy-schmancy event conference, and mention it costs $10,000 to go. I respond, “Wow – I’m so glad your business is doing so well!” They grimace and say, “Well, I put it on the business credit card, but I had to, everyone is going.”

Or maybe a real estate agent pulls in for our meeting in a brand new Audi, ruefully remarking that she can barely afford the payment but that her clients “expect to be driven around, and I need to show them that I’m the best, and the other new agent in my office has one”.

I could go on and on with these examples. Spending to keep up with colleagues and competitors is one of the sneakiest way your budget gets eaten up by items that don’t actually line up with your goals! And it’s really easy to succumb to this mindset, especially when you don’t have your own goals or a grasp on the finances of your business. Just because you can write something off doesn’t mean you should! It’s rarely the best financial move for your business. Getting clear on your own goals will keep you from falling prey to someone else’s.

5. Not saving for retirement.

As creative entrepreneurs, we don’t have an HR department to email us about our 401(k) contribution and just send us over a form to sign once a year to save for our future. This is something we have to figure out ourselves and can feel incredibly daunting. So many of us don’t know where to start, and when we do, we’re immediately overwhelmed – do I want an IRA, or a 401(k)? Traditional, or Roth? What about a SEP? How much can I legally put in, and how much can I afford to put in? There’s a saying in investing that goes, “The best time to start investing was ten years ago, but the second best time is today”. Due to the magic of compound interest, I always encourage creatives to just start – even if it feels like you’re barely contributing!

If you’re not saving for retirement at all, the very first step (in my opinion) is to open up a Roth IRA (through Vanguard or Fidelity). The contribution max is $6,000 a year or $500 a month. That’s obviously a hefty bill, and you don’t need to max it out – you just need to decide how much you can put away each month (or year), set up an automatic transfer, invest your funds, and watch your money grow for future you. Once you work up to maxing out the IRA, it’ll be time to look into other ways to save.