Maximizing Your Earnings: How a Financial Advisor Can Help Self-Employed Workers

Are you a self-employed worker looking to maximize your earnings? If so, enlisting the help of a financial advisor can be tremendously beneficial. In today’s competitive market, freelancers and independent contractors face unique financial challenges. From managing irregular income to planning for retirement, self-employed individuals can greatly benefit from the expertise of a professional fiduciary advisor.

A dedicated financial advisor can provide guidance on creating a budget, reducing taxable income, and optimizing investments. By understanding your specific financial goals and circumstances, a trusted advisor can craft a personalized strategy to help you grow your wealth and secure your financial future.

Moreover, a financial advisor can also assist in navigating the complex world of tax regulations and deductions specific to self-employed professionals. By minimizing tax liabilities and taking advantage of available deductions, you can keep more money in your pocket while remaining compliant with tax laws.

Don’t let the complexities of managing your finances hold you back from achieving your financial goals. With a financial advisor by your side, you can feel confident in your financial decision-making and take proactive steps to maximize your earnings.

The importance of financial planning for self-employed workers

Being self-employed offers numerous benefits, such as flexible working hours and the ability to be your own boss. However, it also comes with financial responsibilities that can be overwhelming without proper planning. One of the key reasons why financial planning is crucial for self-employed workers is the irregularity of income. Unlike traditional employees, who generally receive a fixed salary and benefits, self-employed individuals often experience fluctuating income streams. This unpredictability makes it essential to have a solid financial plan in place.

Proper financial planning can provide self-employed workers with a roadmap to success. It helps identify short-term and long-term financial goals, create a budget, and allocate resources efficiently. With a clear plan, you can better manage your cash flow, save for emergencies, and invest strategically to grow your wealth.

The role of a financial advisor in maximizing earnings

A financial advisor plays a pivotal role in helping self-employed workers maximize their earnings. These professionals possess the expertise and knowledge to navigate the intricacies of financial management. By leveraging their experience, a financial advisor can provide valuable insights tailored to your unique circumstances.

One of the primary ways a financial advisor can help boost your earnings is by optimizing your investments. Advisors can help analyze your risk tolerance, time horizon, and financial goals to recommend prudent and suitable investment strategies. Whether it’s diversifying your portfolio, investing in tax-efficient funds, or exploring alternative investment options, a financial advisor can guide you towards opportunities that align with your objectives.

Additionally, a financial advisor can assist in reducing taxable income through strategic tax planning. This may involve identifying eligible deductions and credits specific to self-employed professionals as well as managing investments tax-efficiently, which can help ensure that you are taking advantage of every opportunity to minimize your tax liabilities. By optimizing your tax strategy, you can keep more of your hard-earned money and reinvest it into your business or personal financial goals.

Assessing your financial goals and needs

Before diving into the specifics of financial planning, it’s important to assess your financial goals and needs as a self-employed worker. This step sets the foundation for creating a customized plan that aligns with your aspirations.

Start by identifying your short-term and long-term financial goals. Do you want to pay off debt, save for a down payment on a house, or plan for retirement? Defining your objectives will help determine the steps needed to achieve them.

Next, evaluate your current financial situation. Calculate your net worth by subtracting your liabilities from your assets. This exercise provides a current snapshot of your financial health today and helps identify areas that may require attention or adjustments.

Consider your risk tolerance as well. Are you comfortable with taking on more risk to potentially achieve higher returns, or do you prefer a more moderate or conservative approach?  A financial advisor can guide you in the process of balancing your risk tolerance with your goals, time horizon, and income needs.

Creating a budget and managing cash flow

Cash flow planning is crucial in any financial plan, but especially for self-employed workers who may have more irregular cash flow patterns.  Starting with a budget is a good first step. A budget can be a crucial tool for self-employed workers to manage their cash flow to ensure that their income sufficiently covers their needs.

Start by categorizing your expenses into fixed and variable costs. Fixed costs include rent, utilities, and insurance, while variable costs encompass discretionary spending like entertainment and dining out. By tracking your expenses, you can identify areas where you can cut back and allocate more funds towards savings or investments.  After that, determine which of these expenses are essential (i.e., food, shelter, clothing, etc.) vs. non-essential (i.e., entertainment, travel, etc.).  This can help you prioritize which expenses you need to cover first and potentially which expenses you may be able to reduce or cut down.

Next, analyze your income sources and estimate your monthly earnings. Since self-employed workers often experience irregular income, it’s important to establish an emergency fund to cover any income gaps or unexpected expenses. Aim to set aside at least 3-6 months’ worth of essential living expenses in a separate savings account.  It is usually advisable to have 3-months’ worth if there are two working spouses and 6-months’ worth if there is only one working spouse in the household.  In terms of savings options for emergency funds, there are excellent high-yield savings accounts where your cash reserve can earn north of 4% interest.

Remember to review and adjust your budget regularly as your income and expenses fluctuate. A financial advisor can provide guidance on optimizing your budget to ensure you are making the most of your earnings and working towards your financial goals.

Retirement planning for self-employed individuals

Retirement planning is a critical aspect of financial management for self-employed individuals. Unlike employees who may have access to employer-sponsored retirement plans, self-employed workers are responsible for creating their own retirement savings strategy.

A financial advisor can help you navigate the various retirement savings options available to self-employed individuals. In addition to saving in personal retirement accounts, such as a Traditional IRA or Roth IRA, there are many options to consider such as

• 401(k) or Solo 401(k)
  • A 401(k) offers the ability for participants to defer up to $23,000 of your own money into your retirement account.
  • Contributions can be made into the traditional pre-tax bucket or into a Roth bucket, depending on how you design your plan.  As the employer, you can also make matching contributions plus profit sharing contributions, totaling up to $46,000.  All-in, you could sock away a grand total of $69,000 in 2024 between personal and employer/business contributions combined.
  • If you will be the only employee in your business, you can set up a Solo 401(k) for yourself.  Maximum contribution dollar amounts are the same, but employer contributions are typically limited to 25% of W-2 income or 20% of your net schedule C.  Solo 401(k)’s are extremely easy and fast to set up.
  • Additionally, even as the sole owner, you can include your spouse in a Solo 401(k), whether they are an owner or a W-2 employee.  For your household, this allows you to essentially double your contributions into a 401(k) as a family.
• SEP IRA:
  • A SEP IRA (or Simplified Employee Pension Plan) is another easy to administer plan you can utilize.  The maximum is generally the lesser of 25% of the first $345,000 of compensation or $69,000.  However, for self-employed individuals, your contributions are generally limited to 20% of your net income.
  • Contributions are generally made by the employer only, but employees may be able to make Traditional IRA contributions to the SEP-IRA.
  • Contributions are tax deductible for the employer, and you have the flexibility to contribute or not contribute each year.  However, all contributions must be the same for everyone in the plan up to the specified limit.
• SIMPLE IRA:
  • A SIMPLE, as the name suggests, is another easy-to-setup and administer retirement plan option.
  • You can personally contribute a maximum of $16,000 this year, commonly via pre-tax deferrals but you now have the option of contributing to a Roth SIMPLE as a result of the SECURE 2.0 Act.
  • Keep in mind that there is a required employer match contribution, regardless if you are the only employee or have a few employees.  The match stipulations are either (1) dollar-for-dollar match of employee contributions up to 3% of each employee’s compensation, or (2) 2% of all eligible employees’ compensation regardless if they contribute or not.

By starting early and regularly contributing to your retirement savings, you can take advantage of compounding interest and ensure a comfortable retirement. A financial advisor can help you determine the optimal contribution amount based on your financial goals and projected retirement expenses.

Tax planning and minimizing tax liabilities

Tax planning is a crucial aspect of financial management for self-employed workers. As a self-employed individual, you are responsible for paying both the employer and employee portions of Social Security and Medicare taxes. Additionally, you must navigate the complex world of tax regulations and deductions specific to self-employed professionals.

In coordination with your tax professional, a financial advisor can assist in minimizing your tax liabilities and maximizing your after-tax income. In addition to retirement plan contributions, you can work with your tax professional to identify eligible deductions, such as home office expenses, business-related travel, and health insurance premiums. By keeping meticulous records and leveraging available deductions, you can optimize your tax strategy and keep more money in your pocket.

As always, it is important to consult with a qualified tax professional on any tax-related decisions.

Investment strategies for self-employed workers

Investing is a powerful tool for growing your wealth and maximizing your earnings as a self-employed worker. However, navigating the world of investments can be overwhelming without proper guidance. A financial advisor can help you develop an investment strategy that aligns with your financial goals and risk tolerance.

Diversification is key when it comes to investing for self-employed individuals. By spreading your investments across different asset classes and industries, you can help mitigate risk while maximizing returns. A financial advisor can help you analyze your risk tolerance and recommend a diversified portfolio that balances growth potential and stability.

Consider tax-efficient investing strategies as well. Depending on your income level and investment goals, your financial advisor can guide you towards investments with favorable tax treatment. For example, investing in tax-efficient funds or maximizing contributions to tax-advantaged retirement accounts can help minimize your tax liabilities.  Tax loss harvesting is another potential option where your advisor can help you strategically take (“harvest”) capital losses in your taxable accounts in order to offset capital gains that would have otherwise been taxable.  Additionally, strategies such as asset location, in which you place assets in taxable vs. tax-advantaged accounts based on their tax efficiencies/inefficiencies, can also be a valuable strategy to consider.  For example, investing in municipal bonds and individual stocks in a taxable account while investing in taxable bonds in your tax-advantaged retirement accounts may help maximize after-tax returns.

Insurance and risk management for self-employed individuals

As a self-employed worker, it’s essential to protect yourself and your business from unforeseen events. Insurance plays a crucial role in risk management and provides financial security in case of accidents, lawsuits, or other unexpected circumstances.

A financial advisor can assess your insurance needs and recommend appropriate coverage based on your industry and specific risks. Whether it’s liability insurance, professional indemnity insurance, or disability insurance, they can help you find policies that offer comprehensive protection.

Moreover, a financial advisor can help you evaluate the cost-benefit analysis of insurance policies to ensure you are getting the best coverage at a reasonable price. They can also review existing policies regularly to make adjustments as your business evolves.

Benefits of partnering with a fiduciary financial advisor

Hiring a fiduciary financial advisor can be a game-changer for self-employed workers looking to maximize their earnings. Dedicated fiduciary advisors bring a wealth of knowledge and experience to the table, helping you navigate the complexities of financial management.

One of the key benefits of working with a financial advisor is the personalized guidance. They take the time to understand your unique circumstances, financial goals, and risk tolerance. With this information, they can craft a customized plan that aligns with your objectives and maximizes your earnings.

A financial advisor can also provide peace of mind. By having an expert handle your financial affairs, you can focus on growing your business and pursuing your passions without the stress of managing complex financial matters.

Lastly, a financial advisor can help find techniques and identify tailored strategies to increase your household’s bottom line.  At Tenet, we employ a proprietary process called Household Alpha, where we utilize advanced planning strategies to deliver real added value beyond investment returns, focusing on controlling and mitigating risk, cost, and taxes.

Conclusion: Taking control of your finances as a self-employed worker

Maximizing your earnings as a self-employed worker requires careful financial planning and strategic decision-making. By enlisting the help of a financial advisor, you can gain valuable insights, optimize your investments, and minimize tax liabilities. From creating a budget to planning for retirement, a trusted advisor can guide you towards financial success.

Don’t let the complexities and stress of of managing your finances hold you back from striving toward your personal and professional goals. Take control of your financial future today by partnering with a financial advisor who can help you navigate the unique challenges of being self-employed. Our team at Tenet has the experience and expertise to help you confidently make financial decisions and guide you every step of the way.  Contact us or schedule an appointment with us today.

 

Registered Representative of Sanctuary Securities Inc. and Investment Advisor Representative of Sanctuary Advisors, LLC. Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. Advisory services offered through Sanctuary Advisors, LLC., a SEC Registered Investment Advisor. Tenet Wealth Partners is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC.

The information provided in this communication was sourced by Tenet Wealth Partners through public information and public channels and is in no way proprietary to Tenet Wealth Partners, nor is the information provided Tenet Wealth Partner’s position, recommendation or investment advice.

This material is provided for informational/educational purposes only.  Any hypothetical examples provided within this material are for illustrative purposes only. This material is not intended to constitute legal, tax, investment or financial advice. Investments are subject to risk, including but not limited to market and interest rate fluctuations.