Essential steps to a better financial future for the self-employed
I recently attended a workshop called Financial Challenges that Matter Most, which was held in one of the conference rooms at the New Americans Museum in Liberty Station, San Diego. The workshop was organized by the Association of Translators and Interpreters in the San Diego Area (ATISDA). Whether you are an entrepreneur or a freelancer, and, especially, if you live in the United States, I learned that planning your financial future wisely can be one of the best decisions you can make early in your career. Let me explain why.
One of the things we tend to underestimate as we go on with our day-to-day business is that all of the hard-earned income we make with our professional services is one of the most important assets in our life. Without that income we wouldn't be able to sustain and acquire other assets like real estate, investment accounts, art, health, the business itself, and more.
Step 1: Understand YOU are the most important asset
As self-employed professionals living in the United States, we need to think about the social welfare system and how, if we ever need to rely on it, there is not much we can count on with only social security. First of all, let's think about YOU, the most important thing you need to protect in order to ensure that there will be flow of income regardless of your situation.
Health Insurance: This is a type of insurance that covers our medical bills or surgical expenses if we ever need to be treated.
Disability Insurance: If we ever get sick or get into an accident that would disable us from being able to work (which for translators is usually a low risk, but, for instance, if we don't take care of our health by sitting too much in front of our computers...), we wouldn't want to touch any retirement savings before we have some time to recover.
I read this article, Health and Disability Insurance, for ways to find health care insurance (in case you don't have any) and to better understand the differences between health and disability insurance.
Step 2: Protect your business
As sole proprietors we might want to think about a general liability insurance (umbrella policy) for our business or become an LLC, C Corporation, or S Corporation, which generally have limited liability if anyone ever wants to sue us (although they require more money and paperwork to establish). The umbrella liability policy is a good idea as sole proprietors because it protects other personal assets like our home or our car. I found this article useful if you would like to read more about how to protect your business.
Step 3: Plan for retirement
We also need to think about our retirement. Aren't we working hard to have a decent retirement in order to do all the things we didn't have a chance to do? Travel, paint, write, or work on other personal projects? One of the important things I learned from this workshop is that opening a Roth IRA account might be a better decision than a Traditional IRA because you can obtain tax-free income in retirement with the former one. Read more information on this page to find out why Roth IRAs are a better choice. And since we are talking about protection, we should consider buying an annuity (if we have enough money in our savings account) to ensure we keep up with inflation and guarantee we have a stream of income in retirement. Read more about how to protect your retirement income.
The purpose of writing this post was to share some of the things I learned from this workshop and to encourage everyone (especially self-employed translators) to look more into these matters. We certainly won't regret this in the future if we need a back-up plan. At first it can be overwhelming to learn about all of these financial matters, but given time they will start making a lot of sense. Research companies that offer these services. There are plenty of resources on the web to find out what companies are trustworthy. There is no need to do everything at once. A good financial adviser should take the time to analyze what is best for you in accordance with your financial situation.