Welcome back to ADHD Money Talk , the show that helps dynamic but distracted ADHD brains take back control over their money and their future . Welcome to the show . Okay , today we are going to do a listener question because a listener has kindly and generously given me a question to answer , and so I'm going to do that as a reminder .
If you remember , way back in the day , when I was doing this podcast like every week and I was trying to just be a boss about it I always asked they almost pleaded for listener questions .
I would love to have more of them , because when you give me a question , I get a little dopamine shot and I'm like , ooh , someone's asking me a question , I'm going to answer it on the podcast . What a great idea .
I'm going to make this person happy because they're going to get a question answered and their name will be mentioned just their first name , because that's important and they're going to get a thorough answer and , over explanation , a 30 minute long rampage on their question , and that's fun for me and probably for you too .
I mean , if I asked a question to be on a podcast , that it would get on the podcast , like literally within like two or three weeks . I would ask questions , and this is your opportunity to do that , because I don't get a lot . I mean , my podcast is small , it's not tiny , it's not huge , it's niche .
This is niche , this is ADHD , which is niche in and of itself a big niche . But then we go into a smaller niche , subsection of that niche , into the one area where almost everyone avoids talking about and I'm talking about it .
No other ADHD podcast wants to talk about this , because there are episodes that even do talk about it are probably the worst performing episodes , because no one wants to even think about it . No one even want . Everyone is in avoidance . Don't think about it , ignore it . It doesn't exist , my future doesn't exist , nothing exists , money doesn't exist .
I'm good , oh my gosh , I'm screwed , just kidding , whatever . So that's why my podcast is small , not huge , so I don't get a lot of questions . I want them and you want them , so ask them , I mean , and we will answer them . I will answer them .
One other thing to know is that a few episodes ago I talked about an app called Monarch and in that episode I gave you a discount code to use to get a discount on Monarch for a year . That discount code no longer exists . It got turned off pretty quick because the public sharing of that created some issues with people not being great people .
I don't know , maybe we were things with discount codes that people don't like , so Monarch had to turn that one off .
But I have a new one that I'm not going to share out loud , but if you were to Instagram message me or email me or ask me for it through the podcast , website , answer or question form , whatever , then I will be glad to share it with you , and that code is going to be good until the end of the year .
So if you want to give Monarch a shot , I highly recommend it . It is a game changer for me and for my clients . So let me know . All right . So the question we have today is from a lovely I can only presume a lovely woman , young woman , I presume the most my listeners are young . Her name is Elle . She gave me a question , so I admire her for that .
Her question is I am a self-employed bracket therapist , because I'm assuming she's a therapist because the way that this reads . So I am a self-employed therapist and also a 1099 at a group practice . How much and how do I save and invest based on the ongoing fluid income flow .
What a great question , and I have decided to answer this within a lens of therapists , just because I have a lot of clients who are therapists and this reads like that . So I hope that this does answer your question .
First thing that I would want you to be doing is to make sure that you have your business expenses separated from your personal expenses , and you can do this simply by opening up a business bank account and a business savings account , if you wish as well , because this way you can have a very clean sort of understanding of what is it cost to run your business
. And in my mind , your business is your self-employment , but also your 1099 as a contractor to me is all within your business . That is , your business is being a therapist . You have your own clients .
You also work with clients that are technically the clients of , I guess , another company , but the whole thing is your business , because all that revenue would come to your business bank account . That is your business . That's important . So the first thing for sure is open a business bank account if you don't already .
Make sure you keep your business expenses separate from that , and that will also just help simply with simplifying your tax reporting , simplifying your profitability , simplifying your ability to understand your profitability . It can make you appear more professional .
If you're a sole proprietorship , you don't have a ton of personal liability protection , but it still will help you with legal protection . Having it separated It'll just help . Our ADHD brains want clear , clean lines and structure , so that'll definitely help .
Using accounting software would help and a system for just tracking receipts and invoices , and all of that will be very useful for you . That is the first thing , and regarding the structure , sole proprietorship is fine . There's also the option of going with an LLC , which you could set that up .
That provides some legal protection between you and your personal assets and business sort of assets and debts . So LLC can be a very good way just to have that protection for you . Then , of course , there are some states where you can't have an LLC , where you might have to be a professional corporation or there's some nuance there .
But thinking about your business structure is important . And so now that you've got your business account , you've got your personal accounts , you can now track your expenses and you can start setting budgets for your expenses on both the personal side and the business side .
You could simply use a Monarch , which I've talked about before , to track both , or you could use accounting software as well .
Some of my clients will use Monarch to offer the day-to-day tracking of the business expenses , but then they'll just sort of give that over to their accountant later who will sort of do the bookkeeping or the recordkeeping for their accounting software . So there's lots of different ways to skin the cat .
But yeah , it's important to be budgeting and understanding your expenses , because then , once you've got an idea of this is my fixed expenses for my business , these are my fixed expenses for personal you can then at least know that this is what I need to cover me to keep operating .
And then you can also throw in budgets for food , all the variable expenses , and then you can draw a line there and say , ok , above that , this is money that could be invested or saved . Also , taxes so as 1099 worker and being self-employed , you will need to be paying self-employment taxes .
So you'll want to be setting aside anywhere between 25% 35% of your income for taxes , and of course this percentage will vary depending on your specific situation .
But you need to make sure that you are taking care of that , because we do not want a big tax bill come tax time , you should also definitely be considering paying quarterly taxes , so setting it aside but then paying quarterly taxes just to help you avoid any potential penalties .
And going back to the expenses again , you know tracking and taking advantage of industry specific tax deductions like office supplies , equipment , professional development expenses . You want to be tracking all of that separate too , so that way you can just know how much you're able to deduct to lower your tax bill .
And then again , going back I'm just thinking now about the expenses and income you really want to think through sort of what are the levers ? That kind of create your level of income any given month , like what's it based on ? It's based on the number of clients .
You see , you know your insurance reimbursements , the structure of the group practice , you know what is your compensation percentage , and understanding these variables and potentially mapping it out on a spreadsheet or something just gives you that ability to sort of forecast .
So then as the month goes on , you can kind of say , okay , this is how much I'm expecting , and that way you can stay more on top of things .
Going back to the business sort of account side of things , having a business savings account could be good , because then you could also you know , before you really just invest into investments you could first have like a business emergency fund in case times get lean , or maybe it's for future investments into your business . That's really important .
Maybe you want to just go full solo and not do the 1099 work , and maybe you're going to take a little temporary hit on the income side , but you want to have some emergencies there . So it's really important to have that as well .
So then , big picture , just like I recommend with personal savings and stuff , having a way to sort of have income once your income fills up your fixed and variable expense needs , you then should have an understanding of okay , the rest of the money that comes in gets directed into maybe another account , or maybe just straight into an investment account , whatever
makes sense for you at the time . You know , given your place , having that money just get directed to the goal , which is it sounds like to you it's investing , saving and investing . So once your fixed and variable expenses are taken care of , you can have the rest of the money flow into a different account or wherever it needs to go .
You can set rules for this in accounts , whether it be like mental rules or written rules , or you just have like an understanding of this month . When my account hits this and you know the rest of it I can just send to here .
Or you can use a program that's really cool and that's out , called sequenceio , which helps kind of automate smart automate kind of the movement of money . So there's ways to get it , but basically knowing over what threshold is money kind of like free money to put towards goals In terms of investing and how and you know where you should invest .
On the personal side , you've got options you can do depending on your level of income . You could either straight up contribute to a Roth IRA or you could do a back to a Roth IRA contribution every single year , or you could potentially do just a regular taxable brokerage account .
And then on the business side , you have the option of setting up a SEP IRA , which is self employment pension IRA . So that's basically a self employment IRA where you can contribute a lot more than you could in a traditional IRA on the personal side . So for the SEP IRA you can contribute 25% of your income or 66,000 , whichever is lesser .
So if you get so , if 25% of your income is 70,000 , then you can put in 66,000 . If 25% of your income is 10,000 , then you can put in 10,000 to SEP IRA and those contributions will reduce your taxable income dollar for dollar , because it's a pre tax savings vehicle . So the money that you put in will not be taxed until you take it out .
You may even be able to do , depending on the provider , a Roth set by RA , in which case you will not reduce your taxable income , but you'll be putting money in . After tax , that money will grow tax-free and you'll take it out tax-free . Ultimately , that can make a lot of sense if you're in a lower tax bracket than you expect to be in the future .
That can make sense because that way you're paying the tax now but you're in a lower tax rate , so you're paying overall less tax than later on , when you're in a really high tax rate because you're making so much money .
You can switch to a regular set and reduce your taxes Today by not paying at the high tax rate and then , when you're in a lower tax rate maybe in a few years , while you start to retire you can take out money and pay from the regular set by RA at a lower tax rate .
So , tax planning as an aside , the goal is to minimize your tax rate , your lifetime tax rate . What is your average tax rate over your life ? Let's minimize that . Sometimes that means you're deciding to pay taxes today to pay less taxes tomorrow . I would say the easiest way , honestly , the easiest way to get all this going is to work with someone .
I'm not trying to pitch my business or anything , but this is a lot you can do as a self-employed person and a 1099 worker , and I would as someone who's a financial planner who has clients , like you .
The point is that I want you focused on getting clients and growing your business and saving for your business and reinvesting in your business and helping you grow that , helping you have more money so that I can help you manage it .
Because you having to deal with all of this with ADHD especially if you have ADHD , because this is my show it gets to be a lot and overwhelming and , as we all know , information overload will just stop , we'll just procrastinate , we just will never do it and when we do do it , it'll be out of a position of complete weakness , meaning we've waited so long that
now it's urgent because we're screwed if we don't . So the earlier that you work with someone , the better , or just get on it and just figure out a way to do it and then just open these accounts and start all of this stuff . It's a lot , it's a lot of lot .
But to recap , basically , what I'm trying to tell you is you have to be tracking your expenses .
You need to know your fixed expenses , you need to understand your variable expenses , you need to know how much you're making over that which can go towards various goals , whether it's whether you set up a set by array , whether you you know , and ideally , what I would want you to probably do and this is not like advice , like this is this is just general
information , because I know basically nothing about your situation besides what you've told me , which is a sentence question , which is great and I love it .
But I just just want you know this is just ideas for you to think about , but before you do anything , I would really want you to be consulting with a professional and making sure you do all of your due diligence and make sure you really understand this stuff .
So , to recap , you want to you know , understand your expenses , your fixed , your variable , what's beyond that you can send to goals every single month . You could , and I would consider potentially setting up like a automatic amount . That , like you know , is gravy . Like you know , you're making at least this much over .
So it's set up an automatic transfer to your goal accounts , whatever you choose to be your goals . Then you know also what's left over at the end of that . Any money that you weren't expecting or any extra income just because you had a good month can go towards that as well .
Make sure you have your business expenses and income coming into separate accounts from your personal . That's really important so you can understand exactly your fixed business expenses , exactly your fixed personal expenses . You can look at your personal sort of profitability . You can look at your business profitability . It's all related .
Obviously you could have a business savings account , keep money in the business so that way you're not having to draw it out from your business and have to pay taxes on it . You can keep it in the business so you can reinvest in the business .
And then I would definitely be considering saving , making sure you have a business emergency fund and making sure as well that you invest in your business , invest in yourself . I mean , I think someone in your position constantly be thinking about how can I improve , how can I get more skills ? How can ? What can I do to raise my fees ?
You know what can give me an edge ? Because ultimately , more income is going to help you in a very dramatic way to make all of this possible and to offer all of this to work flawlessly . There's nothing quite like having income that goes well beyond your fixed and variable needs , because that way you could set stuff up and it runs automatically .
If you're in a poverty mindset , if you're always spending what you have , then any rules and automation you set up just breaks , because you break it , because you're not , you're constantly leaving everything short . Oh , also , beyond the step IRA is also a solo 401k .
Now , I think a set IRA is probably sufficient , but the solo 401k , once you get bigger , might be a good way to switch , or to start with a solo 401k , because as a solo 401k , which is for self-employed people as well , the only thing with solo 401k is you can only have a solo 401k if you have no employee .
So if you ever get so big and you have your own practice and you're hiring a full-time employee , you can't , you can't all or contribute to your solo 401k . You can still have it and it can still grow , but you just can't contribute to it if you have employee . But I know this is so much information and I'm going into the weeds now and so it's fine .
But just quickly , as a solo 401k , you can contribute both as the employer and as the employee , just like with a regular 401k at work . You contribute your employee contribution and then your employer can match as the employer contribution . You can do both , since you are both employee and employer with solo .
Also , that 66,000 I mentioned earlier for the set is a 2023 number , so that's going to change in 2024 . It's changing every year , so keep that in mind if you're listening to this . Well , into the future . So one last time , because I know reputation is good and I know saying it in different ways is good .
If I were to give you a checklist , I would say open up business accounts , move all business expenses to business accounts , start accepting income into business accounts , and then I would start tracking expenses . And number two would be tracking expenses and understanding exactly how much you're fixed and variable expenses are for .
Variable just understand what your patterns are and get an average , understand the line of what your fixed expenses are , the line of what your fixed plus variable typically are , and then that helps you understand what's extra From there . Number three would be to evaluate if you have enough emergency fund savings for your business .
If you do not , I would have that be your first goal . If you do have enough , then I would be looking to opening up the solo or the SEP IRA and contributing to that . Number four would be dope so number so that would be I don't even know a number , I was on three , four , whatever . So the next step , five , I think , maybe , or four .
This is this is why being ADHD and talking to people ADHD can get a little bit complicated sometimes , because it's a little bit of chaos .
But anyways , the next step would be to determine what is the gravy amount that you can set and forget as a dollar amount each month to set account , whether it is the emergency fund or the investment fund , and then I think that would be a great start . Thank you so much for the question , elle , and for everybody else .
I hope you got some value out of this . If you're an entrepreneur , if you're a business owner , if you're thinking about it . I hope this gave you some ideas , some inspiration , hopefully , and with that said , I am going to just end this podcast right now . See you later . I'm out of here . Until next time , take care .