Self-employment offers a lot of freedom. It is great to work for yourself and really work to achieve your own dreams. With the added freedom comes more responsibility. When you are self-employed, you generally will not have a human resources department taking care of your benefits. You are responsible for your own benefits, and future. If you are considering becoming self-employed, here are four things that you should make sure you have covered when you are self-employed.
Health insurance is not something that you can do without. The risks of bankrupting yourself with medical bills is simply too great. You may want to skip this expense, but it really is worth the money. There are several plans available for you that are fairly inexpensive. You may be intimidated trying to sort out the difference between the different plans. Knowing which factors to consider can make the process much easier. You may get a high deductible plan if you are fairly healthy, because it offers a lower monthly premium, and it will protect you if you were to need a major surgery or you had an accident. The downside is that you pay for all of your medical expenses out-of-pocket until you hit your deductible, but a health savings account to offset the expenses.
Self-employment and income taxes are another area where you are on your own. You need to set aside money each month, as well as pay your taxes quarterly. It is important to pay the I.R.S. on time and in full. The process requires you to figure out exactly how much you owe. It is not difficult, but you can face penalties if you do not pay quarterly. You can also be fined if you fail to pay your taxes. You may want to use an accountant the first year you file self employment taxes. This applies whether you are working as a freelancer, an independent contractor or as a business owner.
Retirement is entirely your own responsibility. You will not have a company match or someone urging you to contribute to retirement. This means that you should definitely begin saving now. There are special accounts available to the self-employed, which offer tax savings. By starting early, you can save less money in the future. In addition to a traditional or Roth IRA, you can open a KEOGH or SEP IRA. You should take advantage of any retirement accounts that give you tax breaks, but you may also want to open additional investment accounts to make sure you have enough money when you want to retire.
You may find it more difficult to budget when you are not receiving a set paycheck. However, it is even more important to use your money wisely when you are unsure of how much you will have coming in each month. There are specific steps available to help you budget your variable income. You may want to open a separate account at a different bank to make it easier to keep your business expenses separate from your personal expenses. If you budget carefully, and save regularly, you will be able to manage the months when your income is lower than normal. Most professions have slower times during the year, and you may not know when that is the first year or two of working. This means when you first start out you need a very conservative budget, and to save a lot more just to be safe. Once you figure it out, you may not need to save as much each month.