My last post discussed how I recently made partner and how this has given me additional income, expenses, risk, and personal financial complexity. In this post, we'll discuss the ways becoming a partner has made my own finances more complex.
I get paid a different amount every month, even if I work the same amount. It always makes budgeting fun when you don't actually know what your income will be. My solution is simply to live well below my means, saving more in the months the group does well.
Fixed and variable expenses
Some of the group's expenses are variable, and some are fixed. For example, the employee salaries and benefits and our administrative costs are pretty much fixed. The coding/billing costs, however, are variable and depend on the amount of revenue we generate. Likewise, with my personal finances. My malpractice insurance is fixed. Even if I work two more shifts a month, I won't have to pay any more malpractice. But my taxes are variable. The more I work the more I pay.
This has been perhaps the trickiest part to manage of all of this. I can either buy into the partnership's plan, or I can hit the open market and try to do better. I did find cheaper plans out there, but they didn't have all the benefits (like maternity coverage) I could get through the partnership plan. Even though I live in one of the few states with an insurance exchange, this is an unbelievably complicated process. I ended up putting this on the back burner and just using the partnership plan for this year.
As you may have realized, dental insurance isn't really dental insurance. It's just a different way of paying for your dental care. Most plans have a maximum benefit of something like $2K a year, so the insurance doesn't provide any catastrophic coverage. You also usually have a co-insurance of something like 50%. You do get to pay for at least part of your dental care with pre-tax dollars, and hopefully the insurance company has negotiated some kind of discounted rate for you from the dentist, but the truth is you can do both of these things without dental insurance. There are programs out there that get you a discounted rate of up to 20-30% that you don't even have to pay for. Most dentists will give you a small cash discount anyway. And if you use an HSA, that's pre-tax dollars. I chose to go ahead and get the dental insurance this year, but I may drop it in the future.
Now that I have a high-deductible plan (without the HRA the partners were providing for me before), I am eligible for an HSA. My $6K annual deductible is awfully similar to the $6250 I'm allowed to sock away into an HSA. I'm still undecided on whether to use the HSA to pay the deductible, or to use it as a Stealth IRA. Hopefully we just stay healthy and I don't have to worry about this. I also have to decide where to open an HSA and what to invest it in, but more on that in a later post.
As an employee, I didn't have the option of forming myself into a corporation or an LLC. Now I do and am exploring the pluses and minuses of doing this. More on this in later posts.
No Tax Withholding
Retirement PlansSince I'm not an employee, no money is taken out of my check for taxes each month. I've heard of lots of people who don't realize they're still responsible for paying taxes when they have a situation like this, and end up with a big tax bill (with penalties and interest) the next April 15th. I have another post coming up on making quarterly estimated tax payments. My taxes also become more complicated since I am no longer paid on a W-2 this year, but on a K-1. More income, more deductions, more complexity. More to come on that too.
Many times there are additional retirement savings options available to you once you make partner. My options didn't really change, but at least I'll have more money now to put toward them
Like with any significant life event, making partner is a good chance to review your financial situation including your budget, your insurance plan, your investing plan, your asset protection plan, and even your estate plan. It is also a good time to review your business structure with an appropriate attorney and perhaps even your tax situation with a good accountant. Being in business for yourself is a little more complicated, but in the end it is usually worth it.
Image Credit: Tobias Rutten, via Wikimedia, CC-BY-SA