Fiscal Fitness for the Self-Employed

Fiscal Fitness for the Self-Employed

If you are self-employed, you probably enjoy being the boss and the freedom of being responsible for your own schedule. But you are also saddled with the responsibility of properly insuring yourself and your family and setting up your own savings and retirement plans.

Here is a checklist of things to think about if you don't have a company-paid benefits package or recently left your old job to start your own business:

What kind of medical coverage do you have?
  • If you have left a job that provided coverage, you may be eligible to keep your old coverage through COBRA for at least 18 months (of course you will need to pay for it)
  • You may be eligible under your spouse's medical benefits
  • If you are reasonably healthy, Blue Cross/Blue Shield of Florida may provide you coverage at a reasonable cost
  • Look into group plans set up specifically for independent contractors

What kind of life insurance do you have?
  • Company-sponsored life insurance ceases when you leave the company
  • Life insurance can protect your family against the financial nightmare of your premature death (guarantees based on the claims-paying ability of the insurer, so choose a highly-rated insurance company)
  • Find out how much life insurance your family needs from an independent Florida licensed life agent

What kind of disability insurance do you have?
  • Like life insurance, company-sponsored disability insurance ceases when you leave the company
  • For many people, the most important asset they have is their ability to work. The inability to work due to injury or disability can be devastating to a household
  • Call a few disability brokers to get quotes on how much it would cost to insure your income. Then you can make an informed decision

What are you contributing to a tax-deferred retirement plan?
  • If you have no company-sponsored 401k, it can be difficult, yet still important to consistently save money for retirement
  • SEP IRA's are extremely popular for people who receive income via 1099 (independent contractors) due to their investment flexibility and generous IRS contribution limits
  • Discuss your individual needs and what options are available to you with a Certified Financial Planner ? Professional

Do you have an old 401k or other retirement account from a previous employer?
  • Usually you are allowed to leave your 401k at your old employer, but that may be a mistake
  • If you roll the 401k to an IRA, you have an enormous amount of investment flexibility and you can look for an investment that matches your desire for high returns with your desire for preservation of the assets
  • By rolling the 401k to an IRA you also have the flexibility of converting the IRA to a Roth IRA and potentially realize savings from future taxes
  • Discuss the pros and cons with a Certified Financial Planner ? Professional

How much of an emergency fund do you have?
  • When your income fluctuates, it is important to have money set aside for slow times
  • If you have a spouse that significantly contributes to the household income, you should have at least 3 months worth of expenses set aside in a liquid emergency account
  • If you are the primary breadwinner, you should have at least 6 months worth of expenses set aside in a liquid emergency account
  • Some people prefer to use a Home Equity Line of Credit as their emergency fund. While this can be a good approach, it increases your total debt and often increases your monthly expenses

How are you completing your tax returns?
  • When you are self-employed, your taxes can become very difficult to manage by yourself
  • Work with a CPA whose expertise matches with your needs

Starting a business is a great thing, but only if you make sure that you're covered financially.