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Tips for Self-Employment Sanity

Getting Started as a 1099 Physician, CRNA, PA, NP, Psychologist, or Social Worker

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It goes without saying that now is a good time to go ahead and budget for your living expenses and retirement contributions. The best way, as a self-employed person, to ensure that you make saving for retirement a priority is by budgeting for it and making your contributions on a regular basis instead of waiting till year end. NerdWallet offers a list of the best budgeting and savings tools that can help you get organized. You'll also need a system for tracking your business related expenses.

Plan for emergencies.

Every financial advisor will tell you that an important cornerstone of wealth management is an emergency savings fund. Depending on your particular situation, three to six months of expenses may be sufficient. If your income is more variable or you plan to take long periods of time away from working, you might consider six to 12 months' worth of savings.

Let your emergency fund save you money.

One advantage of a robust emergency savings fund says wealth manager, Chris Cosenza, CFP®, Principal at Clearbridge Wealth Management in Atlanta, is that it allows you to carry higher deductibles on insurance policies.

"If you've got $60,000 sitting in the bank to carry your $10,000 a month in expenses, why do you have a $500 deductible on your car insurance policy? Carry a $5,000 deductible. Carry a $2,500 deductible. You'd be surprised at how much you can save on premiums," Mr. Cosenza advises.

As a rule of thumb, Mr. Cosenza says, if you can afford to max out your deductibles on auto, home and health in a year (a pretty unlikely situation) and not take a material hit to your emergency savings, you can probably afford to raise your deductibles a bit. Be sure to consult with your insurance agent and financial advisor to see if this makes sense for you.

A Health Savings Account can perform triple-duty.

If you are in a position health wise to be able to take out a high deductible health plan, you should consider doing so. Not only will you save considerably on health insurance premiums, you will be eligible to open a Health Savings Account (HSA). You fund an HSA with pre-tax dollars, which can be invested just like a retirement account. The money in the plan rolls over from year to year (no "Use it or lose it" clause here!) and grows tax-free, meaning the account can grow over the years and as long as you use the money for healthcare expenses for you or your dependents, you never pay taxes on the principal or the interest. If you reach age 65, and you have HSA funds left over, you can withdraw the balance, and it will be taxed just like a distribution from a pre-tax retirement account.

Essentially, the HSA can perform three functions. First, it can be an emergency fund for planned or unplanned health expenses. Second, it can be a supplement to your retirement savings plan because you can withdraw funds at retirement with no penalty. Finally, because it is funded with pre-tax dollars, an HSA is a tax savings vehicle.


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Chris Cosenza, CFP®, Principal at ClearBridge wealth Management in Atlanta, GA, contributed to this article.www.clearbridgewealth.com

Kevin Hedrick, CPA, Tax Partner at Williams, Benator & Libby in Atlanta, GA, contributed to this article.  www.wblcpa.com