It’s an employment trend I can’t deny. Many of the graphic designers, writers and publicists I know are becoming self-employed. As a person who used to rely completely on independent contract work, I know there are distinct financial advantages to being employed full-time in a traditional job. After transitioning from self-employed to employed about 15 years ago, I was able to qualify to buy a home. I no longer had to save up money for a new car because I could receive a low-interest loan. Being employed just made financial loans and transactions much easier. Before returning to the self-employment world, I plan to make a few key moves so I can enjoy self-employment instead of seeing it as a financial curse.
Making our last real estate move
According to a recent article by Fox Business, self employed people have to provide a lot of paperwork and prove a reliable income to qualify or a home mortgage. I need to make a decision about whether I want to move or purchase an investment property before I transition back to freelance work. It may take years to build up my freelance business so that I can qualify for a mortgage. Since I would also want to get a car loan before I switch to self-employment, I’d need to watch my debt-to-income ratio carefully with each loan decision.
Maxing out my 401(k)
If I become self-employed, I’ll no longer be able to contribute to a 401(k) or company-sponsored retirement plan. I can contribute the maximum to my Roth IRA due to any earned income I make. If I fall short, I can make spousal Roth IRA contributions based on my husband’s earned income. When I leave my job, I’ll be able to rollover my former 401(k) into a Rollover IRA. If I choose to do so, I can simply roll over my current mutual funds. On the downside, I won’t be able to dollar cost average into the funds anymore if they are closed. However, I can dollar cost average into various exchange-traded funds to minimize my risk over time.
Switching my health insurance
Before becoming a freelancer or independent contractor, I want to make sure I have adequate health insurance. I’m fortunate that I can go on my husband’s health insurance family plan. We currently save money by each having separate health insurance through our workplace. If I don’t get health care, I would have to pay of penalty. After 2017, that penalty is going to be steep. By being insured on a family plan, I’d be able to focus on my work instead of stressing about health care penalties and premiums.
When I was self-employed in my 20s, I was able to boost my income each year by focusing on my business plan. While it was financially helpful to be employed in my 30s and 40s, I know I’ll be returning to the world of self-employment in my 50s. This time, I’ll be better financially prepared for the challenge.
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My Home was a Horrible Investment