Self employed and don’t have a clue. I don’t really get a check every week so trying to figure out how much to put into Roth’s/sep ira. I’ve never gotten a check weekly but get enough to pay the bills and there is plenty left for investments. How do I come up with a number? Almost debt free. A small amount left on the mortgage.
Without knowing the specifics on your current financial position (average annual/monthly income, monthly expenses, federal/state tax rate, age(s), etc.) it would be hard to advise....BUT...
When you say "almost debt free" does that refer to consumer debt or are you including your mortgage in that statement?
General guidelines that work well (of course every individual/household is different and personal finance is PERSONAL):
1. 3-6 months of monthly expenses in an emergency fund. (My wife and I are self-employed as well and keep a year's worth of expenses
2. Be completely free of consumer debt
3. Being self-employed it will serve your well to research a self-directed Solo 401k or Sep IRA--Are you a Sole Proprietor, LLC, S-Corp, C-Corp?). Solo 401k is a powerful tool with the potential to save up to $58,000 annually in tax deferred contributions (Employee Contributions + Employee contributions of 20% net profit)
4. The next powerful bucket to consider is a Traditional IRA or ROTH IRA (depending on income and tax bracket). If needed you can always take advantage of Backdoor ROTH IRA if needed.
5. Do you have a high deductible health plan for yourself on the public marketplace or are you under significant other's health insurance (does it have a high deductible?)? You can qualify to contributed to Health Savings Account (which is probably one of the most powerful levers you can pull in regards to tax free contributions, growth, and withdrawal--especially if you pay out of pocket for health expenses and keep track of your receipts.
6. If you have the income and can save beyond the Solo 401k, IRA, and HSA; the consumer debt is gone and emergency fund is in place, you can start a taxable account to save/invest above and beyond. Some prefer this versus paying down their mortgage aggressively. It depends on your viewpoints of carrying a 'negative bond' in your life.
7. If you have kids you can defer certain amounts based on the state you live in for higher education through 529 plans.
Depending on the nature of employment, the number you'd like to have accumulated heading into retirement, and what your planned expenses are in retirement you can come up with a current savings rate you'd like to maintain to get yourself there.
Hope that isn't overwhelming but gets you headed in the direction you seek. Feel free to ask questions, provide more info, etc. as you see fit! Good luck!
Got a car payment(10k owed) and a house payment(60,000.00 owed). So $70,000. Left. We will be done on the car in a year and the mortgage in 3 yrs. We have an emergency fund of a year saved. 1 company is a s Corp with zero debt and a LLC with no debt. Both make a profit. The s Corp has been running for 21yrs and the llc has been running two yrs. kids have left the home.
At your age, just get started some way.
Great information by IMHooked.
In any of the tax-deferred or Roth accounts, start with 2 to 5 Index funds. Try to diversify some between Small, Medium, and Large cap funds.
Fully funding your HSA each year (if you have a high-deductible health plan) is good. Since my family right now does not have any significant medical issues, I keep $2,000 to $4,000 in cash for HSA fund. The remaining amount in HSA is invested in index mutual funds, just like 401K.
What are the current interest rates on your car and house? General guidelines (0-3%-let them ride as you'll be done with both in approx. 4 years) (4%+ on the car I would pay it off tomorrow and then reallocate your current monthly payment to either investments or extra on the house; again depending on your current mortgage rate). As an addition, because it's just you and your wife and if you're in a save work environment and good health; if you have liquidity standing in your way you could "borrow" up to 6 months from your emergency fund to pay off the car tomorrow and then allocate the freed up payment to replace back to one year. Depends on what allows you to sleep at night BUT you have options!Originally Posted by dawg1419
Congratulations on forging your OWN paths and creating value in the world by starting and maintaining your own businesses; profitable and sustainable ones at that! I can't say well done enough! Not to mention running being a business owner while raising children who have successfully launched from the nest! AWESOME! Toast to you and your wife!
You have a strong financial foundation in your emergency fund and long term business that YOU control. I would highly suggest digging in online to a SOLO 401k (if either of you have no employees). It is a very powerful tool that can help you defer taxes and save money quickly.
If either of you have not opened an IRA (traditional or ROTH) I would do this as well; in fact you can still contribute to one for you AND your wife for 2020 prior to April and frontload your 2021 contributions (since I assume you pay yourselves in your S-corp).
Do you have any other invested assets outside the equity in your home? (stocks/bonds/cash)?
Thanks for taking the time to share here!
Voov, Ivog, mgk, vong, vug is what we are gonna choose between for our Roths. I don’t think any are a bad choice other thean the expense ratios.
Well done!
Great post with very solid advice.
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