Author Topic: Case Study: 25yr old male,Single, and Self Employed  (Read 3184 times)

MoneyMike

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Case Study: 25yr old male,Single, and Self Employed
« on: October 10, 2015, 01:11:39 PM »
Iím a 25 year old single male with no kids living in Omaha,NE that is a independent contractor. I recently made a ďM180Ē in my life so a lot of this stuff is still new to me.

My gross salary income is about $5,000/month after business expenses for now
My total monthly expenses last month were $1,229 + about $134 for taxes and accountant. So I have about $3,637 left to invest which is about %72.74 of my income.

I opened up a SEP IRA this year and put $10k in it (my accountant told me donít put anymore in for now, I pay him $400/year)
I also have opened up a Roth IRA and put $5,500 in it
(so in total i have about $15,500 all in VTSAX in my vanguard account, no bonds)

I pay about $300 quarterly for my taxes

My current expenses: (estimate of last month)
Rent $450/month(I moved into a older place so I could walk to work)
Electricity $36/last month
Renterís insurance is about $10/month (covers up to 6k)
non owners liability insurance about $19/month (just sold my SUV, iím sure iíll buy a car in the future but not for a while. I have this insurance because if I need a car I will rent one)
Motorcycle insurance $85/month (full coverage)
Gas $30/month on my motorcycle
Gym membership $19/month
Groceries $230/last month
Restaurants/Fast Food $150 last month
Alcohol/Bar $140 last month
clothing/shoes $60/last month

I donít have any student loans (I have a bachelors degree) or any liabilities at all - I pay my credit card in full every month.

My assets:
I have $10k in my SEP IRA
I have $5.5K in my Roth IRA
motorcycle is worth about $10k (I just got done paying it off 3 months ago)
and about $15k in savings
Total of about $30.5k (without the motorcycle)

Iím lucky for now my health insurance and dental care are covered through my dad until iím 26 through the military, so this will be a new expense soon. I donít have to pay for my cellphone bill either, and I donít pay for internet. (my neighbor gave me his wifi password)
 
My questions:
1- I think iím doing good now any suggestions for me?
2- I donít have any short term or long term disability insurance. I have enough saved up for short term and plenty of credit if needed. Do you guys think I should have long term disability insurance?
3- Since my retirement accounts are maxed ( I canít put more than 25% of my income into my SEP IRA right?) Iím going to buy a rental property most likely in the next few months, and many more after that. Would you say this is a good move?
4- Should I focus on  building my business more, I make about $60k/year now but could possible get up to $150k/year in the next 5 years.(Thats about the most I could make with this business and it is very time consuming) Or should I try to increase my income with a high paying job.

Thanks for looking!

FIREby35

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Re: Case Study: 25yr old male,Single, and Self Employed
« Reply #1 on: October 10, 2015, 06:14:00 PM »
Sounds like you are doing pretty well to me.

I'd only get disability insurance if you have a family. That is just my opinion.

I don't have an issue with rentals, but if you do that you have to remember it is a business. Treat it like a business and you can make money.

I'm way in favor of continuing to own your own business.** When you are the owner, you control your time and earnings. If you start throwing in a rental/landowner business then your income potential is literally unlimited. If you have already learned to run a small business, don't go back to being an employee.

** I own my own business and I love it. Although I know I am outside the mainstream, I literally can't ever imagine working as an employee ever again for any amount of pay - EVER. So, you know, take that into consideration when receiving my advice.

icemodeled

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Re: Case Study: 25yr old male,Single, and Self Employed
« Reply #2 on: October 10, 2015, 07:46:27 PM »
At 25 you seem to be doing very well off! Your spending is fairly low, which is great. I personally wouldnt worry about the disability insurance at this point in your life.

I am 27 and self employed with rental properties. I strongly consider you think hard about starting rentals right now while growing your current business. It sounds like what you do now is very income generating and you say its possible to increase that. Having rental property could take away from that time to invest in your current venture. Dont get me wrong, rentals can be very profitable as well. Just dont take on to much at once and really look into being a landlord first, its not always that easy. Also, for me I wouldnt get a job unless financially needed. At this point, your doing fine being self employed.

terran

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Re: Case Study: 25yr old male,Single, and Self Employed
« Reply #3 on: October 10, 2015, 08:12:11 PM »
$1200 seems really low for $60k of self employed income. You may want to be prepared for the possibility that you will owe a lot at tax time. Your accountant may be having you pay quarterlies based on last years taxes which is perfectly fine since this will avoid any penalties, but just realize that you will likely pay a lot more in the end.

https://turbotax.intuit.com/tax-tools/calculators/taxcaster/ says a single filer with $60k in net business income will pay over $15k in taxes -- remember that self employment taxes alone are 15.3%.

MoneyMike

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Re: Case Study: 25yr old male,Single, and Self Employed
« Reply #4 on: October 11, 2015, 10:46:59 AM »
Thanks! - So for now I won't worry about disability insurance

I will set aside some money for taxes, they probably will be higher this year

I will stick with the business

As far as my business the only expenses I really have are a few business supplies that might come out to $1k per year, other than that my only expenses would be paying people to work for me. Last month I made about $6k but I worked everyday 65 hours/week (my average income might be around 5k/month it varies between 4k-9k).The work is not bad its just a lot of hours. I'm about to hire someone part time so I can only work 4-5 days per week, i'll pay them about $1k/month. I figure this is a good move so I can free up some of my time. Most likely my real estate will be out of state so I will have property management unless I get so many there that the income passes what I make now then I would just manage them myself.

Cwadda

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Re: Case Study: 25yr old male,Single, and Self Employed
« Reply #5 on: October 11, 2015, 10:51:07 AM »
If your taxes are expected to increase, maybe you could look into an HSA as well as switching over to a Traditional IRA to get the deduction.

Goldielocks

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Re: Case Study: 25yr old male,Single, and Self Employed
« Reply #6 on: October 11, 2015, 10:55:16 AM »
As soon as your business is generating $60k + in income a year, look into incorporating.

Then keep drawing and living on $60k, and retain earnings, so you can control your tax advantages...  It will cost a bit to set up and manage each year, but the other taxes saved could be worth it if you do not need all of it each year.

Easye418

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Re: Case Study: 25yr old male,Single, and Self Employed
« Reply #7 on: October 12, 2015, 07:59:20 AM »
$1200 seems really low for $60k of self employed income. You may want to be prepared for the possibility that you will owe a lot at tax time. Your accountant may be having you pay quarterlies based on last years taxes which is perfectly fine since this will avoid any penalties, but just realize that you will likely pay a lot more in the end.

https://turbotax.intuit.com/tax-tools/calculators/taxcaster/ says a single filer with $60k in net business income will pay over $15k in taxes -- remember that self employment taxes alone are 15.3%.

Yep big call out here.  Wife is a 1099 employee because her doctor is a cheap moron, she makes $47k, we put aside $12k for taxes.  Not to mention, the penalties that are growing every day that you don't pay them.  Note, we are in the 25% tax bracket.

FIREby35

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Re: Case Study: 25yr old male,Single, and Self Employed
« Reply #8 on: October 13, 2015, 07:27:13 AM »
The whole 1099 thing is actually an advantage and you should be able to pay really low taxes. You can buy things work related with pre-tax money, you can designate part of your earnings as distribution rather than salary and avoid the self-employment tax altogether. I suggest OP get a good CPA and anyone else who is a 1099 really take some time to learn about tax advantages. I worked at a law firm that paid me as a 1099 and originally I thought it was lame, but it turned out to be the best thing that ever happened to me.