Building long-term wealth doesn’t happen overnight, even for an absolute spark plug of an entrepreneur. While launching a business or monetizing your talent is a powerful first step, the real challenge begins once you’re responsible for every expense, every investment and every financial decision.
From smart money management to long-term planning, these habits make all the difference in achieving lasting financial success.
Here are five essential steps successful people use to build and protect long-term wealth.
Step 1: Be Prepared To Pay as Both the Employer and Employee
Old Age, Survivors, and Disability Insurance (OASDI) is applied to earned income, and you are doubly responsible for it as an entrepreneur. This payroll tax provides security to working individuals who may lose income due to retirement, disability or death.
You want to ensure you establish the financial protection that employed individuals take for granted during their working years. Employees are accustomed to paying a tax rate of 6.2%, and the employer pays 6.2%. Self-employed individuals pay both employee and employer OASDI contributions for a total of 12.4%, which can be paid monthly, but is due quarterly at a minimum.
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Step 2: Find a Tax Specialist That’s Right for You
The current tax laws are extremely favorable to small business owners and entrepreneurs. They allow for great deductions when your expenses are deemed ordinary and necessary in your general cost of business. Reasonableness can be considered as well.
Working with a tax specialist who knows what is best for the self-employed can help you determine those exact deductions, allowing you to set up necessary benefit packages so that you can focus on wealth accumulation
Step 3: Sit Down With a Financial Planner
It’s up to you to establish your benefits package, and there are key considerations that you want to incorporate over time, in no specific order. You create your schedule, determine your time and outline your sick days. You can set up the ideal retirement savings plan that is based on your business purpose.
For example, as an independent contractor, a Solo 401(k) may be ideal because you do not intend to hire anyone else. If you want to add a few employees over time, a SIMPLE IRA or SIMPLE 401(k) may meet your financial needs. Sitting with a financial planner will help you establish which is best for your business.
Step 4: Take Advantage of Establishing a Home Office
In addition to having a home office for convenience, several home expenses may qualify as a tax-advantaged expense. Simply put, you save when you file your taxes just by working remotely from home.
For example, if you own a three-bedroom house that is a total of 900 square feet and have a finished basement you converted into an office and studio because you are an entertainer, a portion of your mortgage may qualify as a business expense. The tax laws are explicit in that they state the space must be exclusive to your business.
So, if the business accounts for 28% of the house, that amount is potentially a rental expense that you can claim on a standard Schedule C. The mortgage is a payment you must make anyway, but the reduced amount allows you a greater profit or even a loss.
Both scenarios offer an opportunity to save and invest more money over time.
Step 5: Commit to Saving Systematically
One of the greatest vehicles for wealth accumulation for company employees is the benefit of systematic savings. Most people are familiar with retirement, but other vehicles are employee stock purchase plans and flexible spending accounts, to name a few.
While you are responsible for setting up your benefits package independently, the benefit of being the employer allows you to make additional contributions based on the financial standings of your company.
Wealth accumulation is possible for everyone. As an entrepreneur, it’s your responsibility to create the benefits package that most aligns with your financial objectives and the business’s status. The best way to not fall behind is to get qualified experts on your team. You have the advantage of saving both as an employee and an employer.
Editor’s note: Dr. Nicole B. Simpson is a dedicated certified financial planner and the CEO and founder of Harvest Wealth Financial.
Caitlyn Moorhead contributed to the reporting for this article.
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This article originally appeared on GOBankingRates.com: 5 Steps Successful Business People Take To Build Long-Term Wealth
