Financial Corner: Financial tips for the self-employed

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Being self-employed has some benefits: You get to choose your own hours, you don’t have to count “vacation days” and you’ll never worry about getting downsized. On the other hand, you’re truly on your own – there’s no employer-sponsored retirement plan and no benefits package.

So, if you’ve recently started a business or become a “gig worker,” possibly due to the COVID-19 pandemic, what can you do to get on the road to financial security?

There are several steps you can take, including the following:

  • Establish a budget. When you’re self-employed – and especially when you’re first starting out – you need to keep tight control over where your money is going. So, establish a budget and stick to it.

  • Retirement plan in1Open a retirement plan. As a self-employed individual, you can choose a retirement plan, such as a SEP-IRA, a SIMPLE-IRA or an “owner-only” 401(k). When your earnings are limited, you can contribute modest amounts to any of these plans, but when your income rises, you can boost your contributions. While these retirement plans have some things in common, including tax-deferred growth of earnings, they differ in other areas, such as contribution limits, and one plan may be more suitable for you than another, depending on whether you have employees. You may want to consult with a financial advisor to determine which plan is best for your needs.

  • Build an emergency fund. When you work for a business or other organization, your income is predictable – but that’s usually not the case when you’re self-employed. And when your earnings are uneven, you can be vulnerable to financial stress when you face an unexpected expense. To help protect yourself from these threats, try to gradually build an emergency fund containing a few months’ worth of living expenses, with the money kept in a liquid, low-risk account.

  • Pay down your debts. Some debts, such as loans to help your business, may be unavoidable – and even productive. But other debts, especially those that can’t be deducted from your taxes and carry a high interest rate, are far less useful, so you may want to set up a repayment plan. With your other expenses, you might not be able to whittle these debts down as fast you’d like, but, over time, your efforts can pay off.

  • Put money aside for taxes. Because no employer is withholding taxes from your paychecks, you will likely have to make quarterly estimated payments. Plus, you’re responsible for all your Social Security taxes, which, if you worked for someone else, would be split between you and your employer. To make sure you’ve got enough money available to pay your taxes, you might want to set up a special account – one that’s not used for any other purpose.

  • Get proper insurance. Depending on the nature of your work, you may or may not need some type of business insurance, but if you have a family, you should certainly consider the need for life insurance, and you may also want to consider disability insurance.

Self-employment can be quite fulfilling – and you’ll find it even more rewarding when you make the right financial moves.


Bio of Local Resident John-Paul:

John Paul

Hi, my name is John-Paul Tancona and I’m a financial advisor with Edward Jones. I have over 19 years of experience in this industry, working with both institutional and retail investors.

John PaulI earned my bachelor’s degree at Villanova University in 2000 and immediately started my years journey into the world of finance. My first 13 years were spent working at high profile wealth management firms covering large institutional investors. Recently, I joined Edward Jones and changed my focus to educating and empowering individual investors so they can achieve all of their financial goals.

We believe in working with investors one on one, either at your local Edward Jones office or conveniently at your kitchen table. We want to find out what is most important to you and your family so we can take you through our established process and partner together for life.

Whether you’re planning for retirement, saving for your children or grandchildren’s college education or just trying to protect the financial future of the ones you care for the most, we can work together to develop personalized solutions tailored specifically to help you achieve your goals.

I live in Sparta with my wife, Julieann, and two children: Dominic (10) and Daniel (7).

My branch office administrator, Ellen Hawkins, has 35 years of experience and is dedicated to offering you an ideal client experience.

I look forward to answering your financial questions and concerns. Please contact me to discuss your options so you can make informed decisions about your unique financial situation.  

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.

Edward Jones, Member SIPC

 


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