Health Insurance, Taxes, and 401ks When You’re Self-Employed
There are a couple of surprising reasons why I, and many other entrepreneurs, first felt hesitant to fly solo in business.
Of course, there are the obvious reasons: Fear of failure, not being sure if it can be done, having to trust fully in yourself and the fate of the universe…
But a couple of the reasons that are not often spoken about are more about the logistics.
When you take off on your own there is no fancy benefits package. No full coverage insurance, 401k, or tax management set up for you. Suddenly those all fall under the umbrella of what you are responsible for.
While these things bring stress (perceived stress really… I’ll explain this in a moment) the trade-offs make it fully worth it.
You gain freedom, flexibility, and ditching that income ceiling in the dust.
To ease a bit of stress and make your journey easier than mine, here are a few tips:
Insurance
Insurance wasn’t something that I was personally too worried about but I definitely avoided dealing with it.
It’s also something people oddly tend to ask about. “What are you going to do about health insurance?”
Luckily there was proof of many self-employed people having health insurance so I knew it couldn’t be a huge deal.
At the 11th hour (first mistake) I started to research insurance policies through the state.
As I began to apply, I learned I was past the deadline for the upcoming month. This meant that I needed to get short-term gap coverage which is basically for emergencies and frankly useless for anything else. I ended up paying in full for appointments and prescriptions that month, promising myself I wouldn’t procrastinate on this again.
For the next month, I honestly had no idea what I was doing so through my state website, I opted to have a broker contact me.
She was AMAZING.
She asked me all about my needs and even helped me research my providers to make sure they were covered. She helped me calculate my business income projection for the year (after expenses) to determine what I would pay. It was wayyyy less that it would have been with the policies I was looking at on my own.
SUMMARY:
Don’t procrastinate and get yourself an insurance broker through the state.
Taxes
This was oddly one of my biggest fears of going full-time in my business. However, I don’t think this fear is super rare for new business owners.
Biggest tip:
PAY YOUR TAXES BRO
Luckily I haven’t learned this lesson first hand, but I know other businesses that have. Don’t be collecting a 6 figure income, evading your taxes, and then get bit in the butt by the IRS later.
It’s a big check to pay back and debt is one of the worst feelings ever.
Second:
Be sure to incorporate somehow. I personally opted for an S corp because S corps are taxed post expenses. S corps also separate my business assets from my personal ones. That way, if anything were to go unexpectedly sideways, my business would be impacted but not myself or my family.
I am not an expert on this so I highly recommend doing your research to pick what makes the most sense for you!
Reach out to a lawyer and an accountant for help on this.
Third:
Set up your QuickBooks.
QuickBooks Self-Employed is a game-changer for me. I can keep track of my revenue and expenses with accuracy, AND it syncs directly to my bank account and CRM: Honeybook (Honeybook is where I manage my clients, contracts, and invoicing.
Give it a try and if you decide to sign up for Honeybook get a discount off your first year here.
Anyways, QuickBooks will set you up for success come tax season because you can just send that spreadsheet off to your accountant.
This leads me to my next tip:
Fourth:
Higher yourself an accountant and save yourself the headache.
Unless you happen to have a special affinity for numbers, tracking, and tax law, leave this one to the experts.
You can google for accountants near you, or maybe try your local entrepreneur Facebook group for recommendations.
I have worked with Aga Homa for the last year and she is amazing. Not only that, but she loves working on taxes more than any human I have ever known. She truly enjoys helping people and wants you to be successful.
Finally:
Embrace it.
Remind yourself that if you are paying a lot in taxes that also means that you are making more. That’s something to celebrate.
Also, remind yourself what taxes get you. Are they always allocated how we think they should be? No. But we can focus on what taxes pay for that make our country a better place. I try to remind myself of National Parks and public schools when taxes season rolls around.
SUMMARY
Don’t avoid it, use your tools and resources, hire someone, and embrace it as much as possible.
401k and Investing in Your Retirement
The best time to start investing in your retirement was yesterday. The second best time is today.
Here’s the great news, you can have a 4o1k as a self-employed human.
There are a lot of options where this is concerned. For me, I am able to teach yoga part-time and maintain my 401k through the company. However, you can actually make larger annual contributions with a solo 401k. Fidelity is a great option to look into for this.
Diversify your investments
In addition to my 401k, I also have an IRA set up through Ellevest. Ellevest is a financial company by women, for women. Ultimately their goal is to increase women’s independence and close the gender wage gap. Through Ellevest, I set up automatic transfers and they take care of diversifying my investments in stocks, bonds, and alternatives.
They also have free workshops and paid 1:1 sessions you can set up with financial advisors.
Vanguard and Fidelity are other good options for your investment portfolio.
Invest Anything
At this point in my business (being new to the full-time solopreneur life) I focus on investing a small amount because anything is better than nothing.
Even if you can invest $10 here and there, the important thing is that you are getting started and building investment as a habit. You deserve to pay and invest in yourself first and foremost. Take care of future you and make them a priority.
Use Your Resources
Educational resources are more accessible at our fingertips than at any other time in history. Give yourself some time to Google and maybe get a mentor. I have worked with Natalia Benson in her Magical Women in Money Membership for over a year and it has changed the way I manage my finances. She also helped me to make money a spiritual and energetic experience.
The tea: I wouldn’t have been able to go full time in my business as soon as I did without her coaching.
SUMMARY:
Start anywhere, do your research, start today, a little bit is better than nothing, take it seriously and invest in yourself for longterm well being.
Remember, You’ve GOT THIS
If I can do it, you can too. The biggest piece of advice is to not avoid any of it. Stare it in the face and take care of it. By that I mean, take care of yourself. This is your life. And you deserve the freest (it’s a word I checked), healthy, and abundant experience.
