(Chapter 4 Begins)
00:15:05 TONYA: Okay, so now we have that budget. But wait! I don’t work for a corporation. As a freelancer, what are things that we can do to navigate that space between working for a corporation, working for yourself, not fully operating your business? You still have basic needs, right?
00:15:23 JOHN: Yeah, I like to call this BYOB, bring your own benefits, right? So typically, when you work for a corporation, things like health insurance, life insurance, disability, retirement; those things are more often than not included. So we can just go through and hit a few key points on these. You know, health insurance is a big one. So as far as what the rules are on health insurance, I encourage everybody to go research that on their own and what’s going to apply to them. But a couple of just kind of break down some jargon with health insurance. A lot of times you’ll see something called a copay, and that’s typically when you go to a doctor’s office, what if anything will you have to pay out of pocket. Coinsurance, which is just a percentage of the bill that you’ll have to pay after you’ve met your deductible. And then the two big terms that apply to a lot of insurance policies, deductible and premium, which the deductible is what you have to pay out pocket before the insurance kicks in, so to speak. And then premium is what you have to pay month to month or annually, however that’s set up, to essentially keep the insurance active.
00:16:24 TONYA: Yeah, and I think you have to choose what works for your family, right?
00:16:26 KRYSTAL: I agree with that because sometimes we kind of disregard about our health and how serious that is. So when you think about is something happens, because you are a freelancer. You’re the main breadwinner. What do you have in place to get you back active and back into the workforce? So you have to preplan for that as well. That’s a part of setting your goals is like, if something happens, what’s my Plan B? How do I jump back from that? So understanding and researching and seeing what best fits for you, especially in the healthcare field, you’ve got to know what your options are.
00:16:57 TONYA: Yeah. And there’s a lot of options out there and it can seem daunting. So by doing your research, it’s easier to find, you know, this works for me; this doesn’t work for me. And shop around. There are options out there. And so we have health insurance. What about life insurance? Because you need life insurance as a freelancer, too.
00:17:14 JOHN: I mean, like Krystal just mentioned, being the sole breadwinner, you know, whether it is just you or whether you have a family with you. And if you are the only person generating income, disability insurance, life insurance, these are big things that you need to kind of sit down and have a conversation with yourself or with your family and decide what’s going to be right for you. A lot of those same principles apply as far as the premium to the life insurance policy, how much life insurance do you think you need is going to be a big thing, depending on what sort of, going back to those fixed expenses, the bills, if there’s a mortgage.
00:17:51 TONYA: Like how much life insurance you need? If someone’s like, okay, I’m going to get life insurance. How much life insurance do I need?
00:17:57 KRYSTAL: What I typically do with a customer is look at about three years, three to five years of what can your family survive on? Can they survive for the next three or five years and also for your burial as well. And then, plus, the legacy you built. If you left debt, or if you grew a huge company, like say for instance if you’re a freelancer and you grew a great clientele and there’s different types of things that you’re leaving behind; how do you protect it? How do you protect anyone from coming in and taking it from your family that you left behind? When I think about life insurance and short-term disability and things of that nature, I think about protecting yourself from financial destruction. So these are the things that you protect. The legacy you built and also the disability is protecting your income and you protecting your family as well, because when you’re in those months of not producing for your family, how do you continue to live the lifestyle that you’ve built?
00:18:44 TONYA: Krystal, let’s actually get into that. Let’s get into the disability insurance, because I think a lot of times we talk about life insurance, we talk about health insurance, but disability insurance is something that is even more valuable for freelancers, because your income is not guaranteed. Your retirement is not necessarily guaranteed. Unemployment isn’t necessarily guaranteed. So as a freelancer, disability insurance. I know a lot of people are saying, “Okay, so what is disability insurance?”
00:19:10 JOHN: The way the disability insurance works is you’re going to have what’s called an exemption period, which means if you become injured or disabled, that there’s a certain amount of time before you basically start to get some replacement income. And that’s something that you would talk with an insurance agent about as far as how much income you want to be replaced. You know, the more income that you would want to be replaced, the more that it’s probably going to cost. Just like the rest of the insurance world works as far as purchasing that policy. But it’s typically relatively inexpensive for what you get out of it.
00:19:44 KRYSTAL: And like how you say that elimination period, that falls back into how much do you have saved, because if you decide, okay, thirty days I need my check. Or in 60 days or in 90 days. But having prepared for that. That’s also protecting your finances as well. So when disability comes to play, you have to think about how long would I need this money? So you have those options of a year to three years. You don’t have to take the big, huge large sum, but there’s always a great thing to at least implement something in place. You have something in place, if you were to be injured and could not work for a certain period of time. So having that conversation, it’s pretty hard, but it’s an eye-opener, too. And there’s options to that. So a lot of freelancers don’t understand that by protecting your income, and by purchasing disability, they don’t have to dip into their emergency fund, or their savings account, and those typical things.
This is just another Plan B that’s set aside for them. So when you’re talking about budgeting and things of that nature, are you having something in place that can take care of you and the legacy that you built outside of that? So disability is one of the biggest things that I think that we really don’t touch on, because I think one of the biggest things is that a lot of people go into the workforce, they just assume that the job is always going to be there. and a freelancer, you have to realize, you don’t always have those checks coming in. and then if you get injured, because you’re a one-man show, if you stop doing it, who’s going to be paying your bills at that time?
00:21:09 TONYA: You might feel like, I can’t even afford to pay myself. I can’t afford to pay for disability insurance. But I’ve seen it in action. I had a coworker and their spouse ended up suffering a terminal medical emergency and they did not realize that they weren’t going to be able to work anymore, but they had disability insurance. And for the last years of her life, she ended up relying on that disability insurance to help cover their household bills. And they had built this beautiful life together. But that disability insurance was critical at that time.
00:21:43 KRYSTAL: It’s a safety net.
00:21:41 JOHN: Yeah. The other thing I’d just like to add as far as building your legacy. If you work for a corporation, a lot of times they’re going to have some sort of a retirement plan in place. You know, we’ve all heard of 401Ks and things like that. Well, an IRA, which stands for Individual Retirement Account, is something that’s perfect for a freelancer. That’s basically starting your own retirement account, right? And there’s two main buckets of this, traditional IRAs and Roth IRAs. It’s just basically how are taxes handled? So super-high level, a traditional IRA generally, you’ll get some sort of feel to write off what you’ve put into it and then you pay taxes when you take it out in retirement. The Roth IRA, you typically pay taxes; the money that goes in is after-tax and it would come out tax-free in retirement. Now obviously, today we’re just doing a very high-level overview of what these things are. Do some research on your own. But IRA, Individual Retirement Account, it’s perfect for a freelancer to start saving for retirement.
00:22:34 TONYA: I’m happy you said that, because you can still for retirement as a freelancer. I mean, you might decide, I can do this forever. I love the work that I do, I could do it forever. But you still want to have the option of retiring. You might get to forever and go, look; I don’t want to do this forever. So as a freelancer, you still need to make sure that you’re taking care of your basics, and you want to make sure that you’re planning for the unforeseen with life insurance, health insurance, disability insurance, and you’re still planning for retirement. Let’s have a look at what we’ve learned.
(Music / Chapter 4 Ends with Key Takeaways slide)