Over the next couple of weeks, six finalists will be auditioning for the opening of “staff writer” at Consumerism Commentary. Each will be providing two guest articles to share with readers. After the six writers have shared their guest articles, readers will have an opportunity to provide feedback before we select the staff writer.

This article is presented by VCMcGuire, a regular contributor to the New York Times and other publications.

I ran my freelance writing business out of my dining room until July, when my family moved to a bigger house. Now I run my business out of a dedicated room on the second floor — a room that we have to heat, cool, clean and furnish. Instead of sharing a 5-year-old inkjet printer with the rest of the household, I have an all-in-one printer, scanner and copier. And it’s time to stop scrawling my email address on a piece of scrap paper when I meet potential clients. I need to bite the bullet and order some business cards.

My business is going through what all personal finance junkies dread: Lifestyle creep.

Normally we think of lifestyle creep as something that happens to individuals or families. Investopedia defines lifestyle creep as “a situation where people’s lifestyle or standard of living improves as their discretionary income rises.” When this happens, people often commit to higher fixed expenses, such as bigger house payments, rather than using the extra income to reduce debt or build savings. Paying for an increasingly lavish lifestyle can make us too dependent too quickly on the new, larger salary. This makes it harder to change careers, retire, or weather a period of unemployment.

I’m learning the hard way that small businesses can get caught in the same trap. Moderate success can spur increased spending on the business itself, making it hard to return to the early days of running the business on a shoestring. As problems go, this is a good problem, especially in the middle of a recession. My business is becoming more established, less fly-by-night.

But I don’t want to get stuck in a cycle of spending long hours in my home office, working to pay for the home office. So I’ve been thinking of steps I can take to make sure my business expenses don’t eat up all my income.

1. Be smart about taxes. Now that I have a dedicated work space at home, I can take a home office deduction on my taxes. This means I can deduct a portion of our mortgage interest and utilities. I’ve also changed the way I save for retirement. Now that I’m paying self employment tax, I have a bigger incentive to contribute to my retirement accounts with pre-tax earnings. So I’ve stopped contributing to my Roth IRA, and instead I’m putting away money in a SEP-IRA.

2. Don’t overspend on self promotion. I’ve been thinking it’s time I put together a website to showcase the projects I’ve done and attract new clients. That means buying a domain name and hiring a web designer, and maybe a photographer to take a head shot of me. I already mentioned the business cards. I love the way letterpress printing looks, don’t you?

Wait a second. All this, just to promote a business that I can do part time, at home in my pajamas? If I’m not careful, I could easily spend all my freelance income and then some. There’s got to be a less expensive way to promote my business.

I can think of a lot of successful freelance writers who don’t have websites. Some link to online writing samples in their LinkedIn profiles, some write query letters to editors, and some get work through good old fashioned word-of-mouth. I could put together a simple site on my own without hiring a web designer. I have talented friends–one of them could probably take a perfectly good head shot. And I can buy a box of basic business cards online for less than $20.

3. Stick to a budget. I’m frugal when it comes to household spending, but for some reason it’s easy for me to justify spending money if it’s work-related. If I go to Staples, I usually end up walking out of there with some goodies that weren’t on my list. But they’re for work, so it’s okay, right?

It’s just as important to be frugal when buying office supplies as it is to be frugal at the grocery store. The tax deduction helps take the sting out of business spending, but it’s always better not to spend the money in the first place. Here’s where self knowledge comes in. I’ve learned I’m less likely to impulse buy if I’m in a hurry. If I go to Staples and wander around the store with a cart for 45 minutes, of course I’ll put things in the cart. But if I stop by for printer paper 10 minutes before an appointment, I will probably walk out the door with only printer paper in my hand.

So what’s a reasonable budget? It’s time to look at my records to find out how much I spend, average, on things like office supplies, computer equipment, and phone calls. Then I’ll figure out which expenses are fairly regular, like subscriptions and toner, and which big irregular expenses that can be anticipated, like computer hardware. Once I have that information, I can look for places to cut back.

4. Don’t be afraid to spend money. Sometimes spending money pays off. I was spending several dollars every time I needed to fax something, not including drive time to Kinko’s. Since I spent $125 on a printer with a built-in scanner, I’ve been able to get away with faxing less, because most companies will accept an emailed PDF file rather than a fax. I’m expecting the new equipment to pay for itself within a year, between reduced costs and increased efficiency.

5. Don’t skimp on insurance. Insurance is the bogeyman of the self-employed. It’s expensive, but it’s not smart to go without. I’m more fortunate than many freelancers because I have a part-time day job that gives me access to affordable health insurance. These situations, while hard to find, do exist. Other insurance solutions for the self-employed include joining a professional organization that offers group insurance rates to its members, or buying a high-deductible plan with a Health Savings Account. (You can see other Consumerism Commentary posts about insurance here.)

Believe me, I’m thrilled that I’ve graduated from writing at the dining room table. But now that I’ve got the basic ingredients to run a modest but successful freelance writing business, I need to make sure to keep my costs down and avoid the temptation to ratchet up my business expenses year after year.

Has your small business experienced lifestyle creep? What are your strategies for keeping your overhead low?

This is a guest article by VCMcGuire, one of six finalists interested in being Consumerism Commentary’s staff writer.

Photo credit: Kaspars Butlers

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