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3 Money Tips for Entrepreneurs and Self-Employed Workers

So you’re working on the next great Web 2.0 startup, or you’re finally shedding your corporate past to work for yourself. You spend all your free time thinking about your business, how to get more clients, and even dabbling in SEO. Well, let’s take a few minutes to make sure your financial house is in order. Here are 3 simple money tips for entrepreneurs, self-employed workers, or anyone going through a career transition.

1. Don’t invest your rent money

If your income is not stable yet and you expect to dip into savings to
pay rent or other living/business expenses, that money should not be
invested in the stock or bond market. Any savings you expect to use
within a year or two should be in very safe, “cash” investments. We’re
talking about the boring stuff here: savings accounts, CDs, and money market funds. You’ll need the money soon, don’t gamble it away.

2. Consider a Roth IRA conversion

If you expect your income to be unusually low this year because your
business is not yet making Zynga money, or you’re just getting started as a consultant, you may be an excellent candidate for converting your old IRAs and 401k’s into a Roth IRA. By converting, you would be prepaying your taxes this year, when you’re in a low bracket, instead of paying them later, when you return to a high bracket. Obviously, many factors go into this decision, so consult a tax expert.

3. Contribute to a small business retirement plan

Once you start making a decent income, saving on taxes becomes a high priority. As a business owner or contractor, an easy solution is to
set up a small business retirement account, like a SEP IRA or
Self-Employed 401k. Your contribution limit depends on your business income, so you may even be able to contribute more than you did with your old corporate 401k. Take a look at Fidelity’s comparison chart to find the right option for you. And if you’re still working a job while starting your business, you may be able to contribute to the small business plan on top of your plan at work.

Edwin Choi is an investment advisor and owner Mariposa Capital Management. Prior to starting Mariposa, he spent several years as a portfolio manager and trader with Merrill Lynch in New York. Subscribe to Mariposa’s quarterly newsletter at http://www.mariposacap.com/join-our-mailing-list/

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