This guest post is brought to us from Joy at Gourmeted. Gourmeted or Gourmet Ed as they call it, is “the adventures of two desperated foodies.” I hope you enjoy Joy’s take on budgeting and the Home Office Warrior.

I could not have been more excited with the thought of working from home. For months prior to leaving the corporate scene I was looking forward to having No Bosses! Flexible Hours! (More) Savings! Working in My Jammies! Well, maybe not so much the latter, but you get what I mean.

There are a lot of pre-conceived (glamorous) notions of working from home and while they sound promising and fun, one needs to have grounded expectations, especially when it comes to money. Remember: You are the boss. ‘Company expense’ is now your expense. You’re the one to approve AND pay for it. And most often than not, you don’t get paid when you don’t work. Leaving a regular office structure also means saying goodbye to some perks that go with it — immediate equipment replacement, retirement contribution matches, medical insurance, free lunches and/or coffee, reimbursable expenses, paid sick days/leaves/travel, paid-for conferences, etc.

Don’t get me wrong, I love working from home and would not have it any other way, but I wish I were more informed when I first ventured into this. My then overly positive financial outlook led me to make naive choices and poor (costly) decisions. If I could write my younger self, I’d give her the following list of things to watch out and budget for:

1.Office Setup This depends on the nature of your business. Ask yourself and what you need to be fully functional and comfortable. Get advice from others who are in the same field, or working from home.

Office Equipment. Do you need just a desktop computer? Would it make more sense to have a laptop? Do you require a fax machine, printer, or scanner? What about a separate table for non-computer tasks? Invest on an ergonomic chair if you will be working on the desk a lot. Get cabinets and bookshelves.

Computer Software. Whether it’s the graphic/web design, programming, or accounting software you need, there is no IT department on speed dial to come to your aid with the CDs you need. It is now up to you to purchase them, on top of your computer hardware costs. I must say it pays to know people who get discounts from the software companies. I do not advocate pirated software. If you expect people to pay for your products and services, be able to recognize and respect what others have done on the software you use as well.

Office Supplies In addition to your computer setup, you also have to think about supplies such as pen, paper, stapler, folders, ink, envelopes, print materials, etc. Although they usually do not cost a lot, unless you get a fancy fountain pen, you still have to take them into account.

Services

Internet connection (for your home or when you are on the go). Aside from the cable Internet that I upgraded to a faster speed, I used to rely on a wireless USB modem for full mobility and independence when traveling. It is a good investment if you can justify the cost of the modem and the monthly subscription. Admittedly, the wireless USB was one expense that I frivolously spent on. It was a costly mistake especially with the termination fee I had to pay. If you are thinking of working from a coffee shop, look for free WiFi.

(VOIP) Phone/Fax. Do you need a landline? And who still use faxes? You’d be surprised. All clients and companies I’ve worked with do. I prefer the flexibility of eFax for this purpose because I can send and receive fax online. When getting a Voice Over IP phone service (such as Vonage), keep in mind that it will work as long as your Internet connection works.

Long-Distance Calls. Thanks to the Internet and the ease at which we hop cities and countries these days, it’s not unusual to be working with peers and clients across the border, or halfway around the globe. Assess your long-distance call needs.

I personally use Skype unlimited for US-Canada calls, as well as a Vonage phone and an additional virtual phone number. It gives my clients the flexibility to call me from a local number, at minimal cost to me. This may be a bit too much for you and keeping one phone number and a phone card would be a better choice.

In my opinion, emails and electronic messages will not fully replace verbal conversations. There are things best discussed, resolved, and closed over the phone.

Mobile Phone. Again, pick a plan that works for you. Don’t pay for minutes you won’t be using. Know the roaming rates if you are traveling. I once paid $500 for a week’s roaming. I learned my lesson after that.

Registrations and Licenses. Do you want to register as Sole Proprietor/Partnership? LLC? Corporation? Do you need to get a business license? Consult with an accountant to best strategize for your taxes. Contact a lawyer for smart legal advice. Do your research so that you are within the bounds of the law to operate your business, and your personal assets are protected.

Merchant Account and online Payments (e.g. PayPal). If you choose to accept payment through these, find out how much you need to set them up and the cost per transaction. For some, sticking to checks, cash, direct deposit or wire transfer payments will suffice at the beginning. Gauge your transaction volume and client preferences before signing up for a service.

Insurance. Insure your house or apartment to include all your office equipment. Find out if you need to be bonded or get liability insurance. Think about securing medical and employment insurance. When traveling, consider getting travel insurance especially for extended trips. If you travel a lot, get a multi-trip travel insurance. Pay for your computer’s extended warranty – get AppleCare for your Mac, for example. You are your own company’s biggest asset so you need to ensure that you, your business, and the essentials to run your business, are sufficiently protected. The expense is worth the peace of mind in the long run.

Backup Storage. One of the most important must-haves when you have a business is file backup. This has saved my sanity twice when my computer crashed with hundreds of hours worth of data, both for my business and clients. The 500 Gigabyte backup hard drives are very affordable and there is absolutely no excuse for overlooking the importance of backup. Go for a few terabytes while you’re at it. You can also have a remote backup on top of the in-house one in case of fires and floods.

2.Your rate or earnings. By the time you decide to work from home, I hope you have crunched the numbers and saw a figure in your favor. However, it is always good to keep in mind that you still have to make some money to keep yourself afloat (and happy). Does your rate reflect the work you do? How much can you charge? Can you live on what you are earning? Should you raise your prices? Are you underselling yourself? Evaluate whether you are offering competitive rates. Going too low can signal that you are not that good (or not confident of your abilities, products, or services), setting your prices too high could lose you good business as well.

3.Taxes. Aside from the possible expensive equipment you need to set up office, I think this is the next big chunk out of your pocket. Depending on your company structure and your income tax bracket, remember to set aside money to pay for taxes. As a home office warrior you can’t just sit back and have all your earnings to yourself, although that sounds nice. You still have to give some of it to The Man so allot a safe cushion for the tax season. Again, seek the advice of a trusted accountant if you are unsure of how much you need to set aside.

On my second year of business, I did not heed my accountant’s advice to incorporate my sole proprietorship company and ended up paying an agonizing amount the following year. These days, I have it set up so that I get a salary from my own company and pay monthly personal taxes. My corporate tax is charged at different rate and different time period (April to March).

I have learned all these and saved money on taxes with the help of my accountant. Good professional advice is irreplaceable.

4.Meals and Coffee Breaks. This was one of the surprises for me. I thought I would save a lot, with the temptation of eating out everyday gone. Wrong. Being so busy, I ended up eating out and ordering for delivery at first.

Watch that coffee break (or should I say run?), too. Don’t give all those savings to your barista. Resist. Brew your own.

Try (pre-)cooking your meals or cooking during your lunch break. The latter is a very good way to unwind and break the monotony in the middle of the day.

5.Travel. With the cost of gas escalating, it is only prudent to think twice about going out several times a day to do errands that you can accomplish in one trip. Do you need to meet a client for lunch? How about scheduling your post office trip after that? Have your afternoon coffee with a friend the same day. Maximize your gas use.

If you need to fly to see a client at their request, make sure they pay for it. If not, given them an option to hold web conferences, and save your money and the environment. If you’re flying to see friends, how about squeezing in a meeting with a potential client in area? Set up business meetings. Similar with doing your errands, schedule a business-related activity with your personal (or vacation) destination. Who says business (travel) cannot be mixed with pleasure? Make the most of it. From a tax perspective, you will be doing yourself a favor as well.

6.Education, Training, and Publications. When you work from home, you are responsible for your own professional development. You need to purchase your own books and industry publications keep up to date. You have to take classes and seminars to sharpen your skills.

Look for deals on magazines and subscribe only to those that would benefit you. Sign up for Amazon Prime if you purchase a lot of books online. You can also check out your local library, and maybe work from there, too.

7.Promotion, Advertisement, Professional Events. That’s right, you’re on your own now and you have to do your own legwork to get the word out about your business. Set a budget for the design/printing of business cards, fliers and posters, the domain name, hosting, and website development. What about newspaper advertisement? Online paid campaigns? Trade shows? Networking events? Decide which things you can do on your own and which ones you can delegate to others. It is okay to do things on your own, but stay focused on your work and business.

Someone asked me why she would want to pay someone to create a website if she can learn to make it on her own. Bottom line is: Yes, you can certainly learn it on your own if you have the time, patience, and perseverance and if the result would satisfy your needs. For me, I believe that some things are best left to the experts.

Let’s say, for example, I charge a rate of $100/hr for my consultation services. I committed to spending 5 hours a day to learn HTML so I can make my own ‘simple’ website. If a web designer can finish this simple task for me in 6 hours for $25/hr, it’s a smart move to just hire someone who can do it correctly and more efficiently. At the same time, I did not lose those 6 billable hours, or quality time with family and friends. It just isn’t worth it to skimp sometimes. It is good to save but be smart about it.

8.Accidentals/Emergency Fund. Just like saving for a rainy day for your family, the same goes for your business. Appropriate a fund for sick days, ‘slow season’, or when you need to replace an expensive (and indispensable) equipment.

In the middle of a web site overhaul years back, my computer crashed and my data could not be recovered. I was on a tight deadline and cannot afford losing a few days or a week to have it sent for repairs. I replaced my laptop the next day and half-heartedly handed Apple a big chunk of money. Just like that. It wasn’t a pleasant period in my home office life, but my saving grace was the entire backup I made. I also found myself sick for two months that directly hindered my work and business. I had to pick between insufferable pain and the inability to produce deliverables to clients. On some days, I had to grin and bear it. Ah, the life of a home office warrior indeed.

9.Retirement. It is wise to make contributions towards your retirement. Don’t forget about this.

Working from home and being your own boss is a more reachable goal now more than ever. You do not have to go blindly into this ‘battle’. It is best to be prepared and ‘geared up’ to face the challenges and you’ll do just fine.

I hope this list would help the new Home Office Warriors out there. And if you have anything else to add or suggest, type away!