EASY MONEY

The Fruitful perspective on demystifying everyday finances

THE RIGHT WAY TO BE SELF-EMPLOYED

QUICK TAKE

To have more confidence about becoming your own boss, gain a better understanding of 3 things: 1) health insurance, 2) managing your finances, and 3) retirement saving.

IN GOOD COMPANY

There are over 30 million small businesses in the US. In fact, that’s 99.9% of all US businesses.

Thinking about going out on your own? Let’s talk about how you can set yourself up for success as an entrepreneur.  

Health insurance

  • COBRA — Allows you to keep your employer-provided health insurance plan for 18 months after you say goodbye to your employer. You pay the entire premium.
  • State health insurance — Your state has online tools to advise you which plan to participate in. They can also let you know if you qualify for any assistance programs.
  • Your partner — If your partner has health insurance and you can join it, it will likely be cheaper and easier than buying your own.

Runway ✈️

Your first year in business may not be rainbows and unicorns 🦄✨ so plan accordingly with an emergency fund. Estimate how much income you’ll need to replace to pay for living expenses. Then make a plan to start saving it. The more saved, the longer your runway.

Bank accounts

The right bank account structure leads to better organization. Consider setting up several business accounts, each for a specific purpose:

  • Revenue — Deposit all monthly revenue into this account, then distribute to the other accounts listed below.
  • Expenses — Transfer 30% of monthly revenue to this account.
  • Taxes — No one likes an unexpected tax bill. As a business owner, you should proactively save for the taxes you’ll owe. Transfer 15% of monthly revenue to this account.
  • Owner’s pay – Transfer 50% of monthly revenue to this account.
  • Profit – This money helps build up your business savings, reinvest into the business, or save for retirement. Transfer 5% of monthly revenue to this account.
  • Savings – Aim for 3x your monthly business expenses. 🎯

Retirement savings

Entrepreneurs are notorious for neglecting their own retirement! Here are some options to build up your savings:

  • Traditional IRA or Roth IRA – Contribute up to $6,000 in 2022.
  • SEP IRA – For anyone who is self-employed.
  • Solo 401(k) – C corporations, S corporations, and LLCs with no employees (except a spouse) can participate in this plan.

Schedule an appointment with a Fruitful Financial Guide to talk about how you pursue your self-employment dreams.

DISCLAIMER

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