7 Financial Tips for the Self-Employed on Long Island

Being self-employed on Long Island can be an enriching experience that allows individuals to have greater control over their work schedules and pursue their interests in a community known for its vibrancy. Embracing the entrepreneurial spirit on Long Island opens up opportunities for personal growth and professional fulfillment. However, along with the freedom and creativity that come with self-employment, there are specific financial hurdles that entrepreneurs in this region may face.

By implementing strategic financial planning, setting realistic goals, and seeking professional guidance when needed, self-employed individuals on Long Island can build a solid foundation for long-term success. Developing a strong business plan, investing in continuous learning, and staying adaptable to changing circumstances are key strategies for overcoming the unique financial challenges that come with being an entrepreneur in this dynamic region.

To help you navigate this landscape and achieve financial stability, we’ve compiled essential tips specifically for Long Island entrepreneurs.

1. Separate Personal and Business Finances

Opening a dedicated business bank account is one of the initial actions to achieve financial clarity. Maintaining a clear distinction between personal and business finances can streamline bookkeeping, enabling accurate expense tracking and reducing the complexity of tax season. 

Consider maintaining different payment methods for personal and business expenses and avoid comingling those expenses. For example, have a credit card for personal use and a separate credit card for business use.

2. Budget Wisely & Track Your Expenses

It is essential for any self-employed person to create a comprehensive personal budget and business budget. By monitoring all income and expenses, you can gain a better understanding of your financial situation. A carefully planned budget enables you to recognize spending habits and get ready for slower periods, particularly if your business operates seasonally.

Keeping accurate records of all business expenditures is crucial for tax-related reasons. Utilizing accounting software or applications can assist in managing your finances. QuickBooks is a popular example that many small self employed individuals utilize. Categorizing expenses simplifies tax deductions, ensuring that you take advantage of potential savings.

3. Set Aside Taxes

Self-employed individuals are responsible for managing their own taxes, unlike traditional employees. It is important to consistently allocate a portion of your earnings to meet your tax responsibilities.

Self-employment tax is a tax that self-employed individuals must pay to cover Social Security and Medicare taxes. Unlike employees, who have these taxes withheld from their paychecks, self-employed individuals are responsible for paying both the employer and employee portions.

Consulting with your accountant can provide guidance on the appropriate percentage of income to allocate and the specific taxes that you may be required to pay. Discussing the option of making quarterly estimated tax payments with your accountant can assist in preventing unexpected tax liabilities, particularly considering the tax rates applicable on Long Island.

4. Build an Emergency Fund

Having financial stability is often a reflection of your ability to navigate unexpected situations successfully. It is advisable to strive to save a minimum of 3-6 months' worth of living expenses in a dedicated account. This emergency fund serves as a safety net during slow periods or for those unexpected expenses, which is especially crucial for seasonal businesses in Long Island.

By planning in advance, you can help safeguard your finances from unforeseen circumstances. This emergency fund should be easily accessible and in a liquid form. Common options for housing your emergency fund include high-yield savings accounts or money market funds.

5. Invest for Retirement

Make sure you prioritize planning for your future! Consider exploring retirement accounts tailored for self-employed individuals to assist you in saving for retirement. These accounts can provide tax benefits that will boost your savings. 

If you run a business without employees, you may want to consider retirement accounts like a Solo 401(k) or SEP IRA. For businesses with employees, a SIMPLE IRA or a 401(k) could be more appropriate. These accounts typically offer a range of investment choices. Consulting with a Financial Advisor can help you determine the most suitable options for your specific circumstances. 

Most retirement plans are fairly easy to implement and can be a great place for a business owner to build a tax-deferred nest egg for their future. Some individuals plan on funding their retirement by selling their business in the future but we would caution against that. You never know, whether good or bad, what the future holds.

6. Invest in Insurance

When it comes to safeguarding both yourself and your business, the significance of having the right insurance coverage cannot be overstated. Ensuring that you are adequately protected involves a comprehensive evaluation of the various types of insurance available to you. Health insurance guarantees that you can access medical care when needed without facing significant financial burdens. Auto insurance is essential for protecting your vehicles and providing coverage in the event of accidents. Personal liability insurance safeguards your personal assets in case you are held responsible for causing harm to others. Life insurance provides financial security for your loved ones in the event of your passing, ensuring that they are taken care of. Disability insurance offers protection by providing income in the event that you are unable to work due to a disability.

On the business front, having adequate business liability insurance is crucial for protecting your company from potential legal claims and financial losses. In this day and age, cyber liability insurance is something to consider as well.

Local insurance agents on Long Island are well-equipped to guide you through the process of selecting the right insurance coverage for your specific needs. By offering personalized recommendations based on your individual circumstances, these agents can help you navigate the complexities of the insurance landscape and secure the appropriate level of protection. Consulting with these professionals can provide you with peace of mind, knowing that you have taken the necessary steps to safeguard yourself and your business against unforeseen risks.

7. Review and Adjust Regularly

Given the constantly evolving financial environment, it is crucial to periodically assess your financial status. Make necessary adjustments to your budget and keep yourself updated on the latest industry developments and economic circumstances in Long Island. Flexibility is key in making well-informed choices and ensuring the long-term prosperity of your business.

Helping Long Island Entrepreneurs Feel Financially Secure

Effective financial management is crucial for self-employed individuals, particularly in Long Island. By implementing these suggestions, you can improve your financial security, make well-informed choices, and concentrate on excelling in your business. Keep in mind that planning and preparation are key elements in successfully navigating the path of self-employment! These 7 financial tips for the self-employed are just a start.

Seeking assistance from a financial advisor can assist you in identifying an appropriate strategy to achieve your financial objectives. HunterRIDGE Wealth Management is a financial planning and wealth management firm based out of Long Island. Our expertise lies in guiding self-employed individuals through complex financial decisions. Click the button below to arrange a free consultation and discover how we can support you.

HunterRIDGE Wealth Management is Long Island's premier wealth management firm. From growing wealth to planning for retirement, we are with you every step of the way. To learn more about how we work with our clients and our planning process click here. 

For educational purposes only. Not to be relied upon as financial, tax, or legal advice. 

This information was obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness, or fairness. We have relied upon and assumed without independent verification the accuracy of all information available from public sources.