As dancers, dance teachers and artists, we often work off of contracts between theaters, companies and studios. In the government's eyes, we are considered "self-employed." Being self employed has many rewards, like the freedom to make your own decisions, working the hours you prefer and most importantly the monetary rewards can be endless. However, there are numerous pitfalls that can derail a dream.
Today, we are asking the tough questions to investment advisor, Kevin Bostic. We want to know how to keep dancing and keep our finances on track - for today and tomorrow!
Photo Source: Drew Humphrey & Ensemble, "We're in the Money;" 42nd Street
Many self-employed individuals overlook their personal savings and retirement. It’s easy to do as most of your time and capital is spent keeping the business growing. In my opinion, this is where being an employee can provide an advantage. Participating in a 401(k) plan allows savings prior to the income ever reaching your checking account. But being self-employed, the income may flow directly to the entity and many owners only pay themselves enough to cover their personal expenses. Lest we forget the 401(k) participant may get a company match, something the self-employed do not get. Therefore the employee can have the upper-hand in retirement savings.
First, you establish some form of retirement account or savings account. Then you divert funds to the account on a recurring basis. Setup an automatic draft – do not manually set aside the funds. Let’s face it, you may have intended to save the money but if it hits your checking account it is in danger of being spent. A swipe of a debit card here or an online purchase there, and the money is gone.
Before you establish a retirement or an investment account, look into contributing to a regular savings first. It’s imperative to have a buffer in case of a financial mishap. Build a base of liquid assets (cash) in a savings account to cover at least three months of living expenses – preferably six months. If the business cycle slows down, the savings buffer should help you survive personally.
The first step is the personal savings. Once that is established then you should seek the advice of a financial professional. There are plenty of financial instruments to help in supporting your business and your personal finances. There are also many types of retirement accounts including but not limited to; Roth IRA, Traditional IRA, Individual 401(k). The key is to determine what suits your goals and objectives. When seeking the advice of a professional, interview at least three advisers and ask the following; how are they compensated, do they sell products or give advice, and what is their client service commitment. Do not settle – if you don’t feel comfortable with the person, interview another. If all else fails, seek the recommendation of a friend or family member.
Absolutely! First, as mentioned, being self-employed allows for greater freedom in income growth. There is no need to wait for the annual review and hope your boss gives you the 2% raise. Your compensation is tied to how efficient and effective you work. The key is discipline, maintain growth in your business and be diligent in your operations.
Photo Source: 42nd Street
This will differ for each individual. The amount will all depend on personal circumstances. There isn’t a specific percentage or dollar amount. Plus the amounts should fluctuate throughout your career. During the peak earning years, you should technically be putting more away because you are making more. In the beginning, it may be harder to achieve a large percentage.
Yes. The only requirements (by the IRS) are set on limits – not minimums. You could contribute $200 one month and nothing for several months in a row. Sometimes contributions are made in one lump sum for the entire year. Contributions are viewed on an annual basis (tax year).
Although retirement planning and saving can be daunting – as a self-employed person, you’ve already demonstrated the ability to overcome obstacles. Use that drive and determination to tackle another.
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