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The Money with Katie Show
Financially Plan for 2026 with Katie: Self-Employment Tea & Contingency Planning
00:30:52
Building a financial plan during transition periods.
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Stocks, ETFs, or what about mutual funds? Choosing your investments is easier with Fidelity. Our step by step experience can help you pick out the right investments for you. Plus, with recurring investments, you can decide how much and how often to invest. Lastly, there's 247 help if and when you need it. To find your next investment, head to fidelity.com trading investing involves risk, including risk of loss. Fidelity Brokerage Services, LLC Member NYSC, SIPC I have been feeling like doing a solo episode for a little while now, but fate forced my hand. I think I might have cursed us when I joked in Rich Girl Roundup a couple months ago that we've had such good luck getting great guests this year because we hit a major dry patch. There were three interviewees in a row that I had pursued doggedly to no avail. So I am taking that as a sign that that I should just lean into my instincts and do what is my first solo chat, I think since January, if you can believe it. So welcome back to the Money with Katie show where today you are just going to hear from me. Katy Gaddy Tasan no interviewee in the building. As you know, if you listen to our Rich girl roundup from October 29th. I am taking an indefinite hiatus from producing the Money with Katie show after the final episode on December 31st this year and part of this change is me essentially buying back the Money with Katie Brand from Morning Brew who acquired it at the end of 2021 and taking it independent again. So I will say more about that, more about the personal and emotional components of these decisions in the final episode of the show. But in the meantime I want to talk about the financial side because 2026 will usher in a major financial change for me. I have never been fully self employed before when I ran Money With Katie independently from early 2020 until the end of 2021, I also worked a full time W2 job that paid me a salary and provided health care and generally created a streamlined base income that I could plan with and then post acquisition, I got a salary and I got health care from Morning Brew. So I've always had a boss, I've always had a bi weekly paycheck, and despite having business income and benefiting from some of the tax strategies that are available to business owners, I've never actually raw dogged self employment before. So all that to say, I am thinking about my own financial plan for 2026 differently than I ever have before and as I was sitting back and thinking about it, it provided the occasion to take you all along for the ride of making that plan and building that plan. So from an entertainment value standpoint, if you're nosy and you're interested in personal finance, I think you'll enjoy this. But I am also not so secretly hoping that you'll be able to borrow some component of this roadmap, some approach that I'm going to talk through today. Or just at the very least use it as inspiration for your own planning process, particularly if you are going through a bit of a financial change. So I am going to talk through both how I am thinking about these changes as well as the more tactical implications. So for example, where I am pulling numbers from or what sort of data I am using to inform these decisions, what are the considerations? I will also be hosting a class on December 3rd where I'll be showing you the enhancements that Emma, also known as Excel Dictionary Online and I made to the Wealth Planner this year. So the new Wealth Planner is very similar to the 2025 Wealth Planner. Rather than blowing it up and remaking it from scratch, we built in a couple new features that I think really take it to the next level. So one of those features is a new irregular expense planner and a transactions tracker for those of you that want to track things manually. So keep an eye out for that class and we will get into it After a quick break, One of the best money moves I made stopped trying to figure everything out alone. As I made progress and got closer to my overall goal, I started to second guess whether I was missing anything. Like was I as on track as I thought? Were my investment allocations appropriate for me? This is the plague of the self taught personal finance nerd. Does it sound familiar? Then I worked with Domain Money's certified financial planners and I got the peace of mind that I needed. They led me through a strategic restructuring of my asset allocation, my cash cushion, and they even helped me pinpoint the perfect timing for an eventual home purchase. And it turned out it was actually later than I thought. What I love is that they don't give cookie cutter advice. They actually look at what you're trying to achieve. Then they optimize everything around that. Plus they use a flat fee structure. You know exactly what you're paying right out of the gate. You can hear from Domain Money's head of financial planning, Adriana Adams in my episode with her from September 3rd called a CFP on outdated advice, jumping social classes and why money mindset matters. Ready to stop guessing and start winning with your money? See what the experience is like for yourself by booking a free strategy session. To see if Domain Money is a good fit, head to moneywithkatie.com domain money to book your session. That's moneywithkatie.com domainmoney I'm a real client of Domain Money via Money with Katie. I receive compensation and have an incentive to promote Domain Money. See important disclosures at DMNMNY co X. Okay, so right off the bat, one major change is that I will need to get health insurance. As we all know, this is a fun part of all of this. So my husband's job does offer health insurance, but the family premiums for the high deductible plan are quite high. It's around $1,000 per month, so we need to plan for that. Another major change that I am making for 2026 is hiring a CPA to manage the books. So up until this point I have always done my own taxes and because I had W2 and 1099 income, it was always sort of a beast. But now that I'm switching to full self employment, that means I'm going to have to start filing taxes quarterly. So when you have a W2 job, there's withholding being taken out of your paychecks and even if you're making other money on the side, you might owe a little bit more at tax time. But if you're fully self employed, you've got to be paying the IRS throughout the year. And I will say that that was sort of the effort threshold for me where I was like, yeah, I'm not interested in that. I think it is actually time that I pay somebody else to do this for me. So what specifically am I going to pay to outsource? For starters, she is going to do the bookkeeping. So this includes all sorts of categorizing transactions, reconciling bank and credit card statements for business accounts, maintaining tax records, presenting quarterly reviews of performance, Preparing and Filing 1099 forms for contract work, preparing and filing quarterly estimates and annual filings, and then calculating and remitting payments as part of my deal to buy back the brand. So the accounting piece of this alone I think hints at a much bigger shift when you make the change from a W2 job where your taxes are withheld by the time you get the payment check and you are effectively receiving the amount due to you and self employment in which there's a lot of money coming in and in some cases a lot of money going back out and you're having to think about those taxes yourself. My expectation is that my CPA and I will eventually attempt to set up some sort of payroll like system that will essentially normalize the income that I am receiving in order to support my spending and just make sure that the proper amount is set aside from taxes. In a business account though, that brings me to my first major planning category, which is the other huge divergence and that is income. That is the biggest unknown here. When I was planning with the W2 income, I knew there was potential to make more money if I did more work or found other gigs, but there was always a number that I knew I wouldn't theoretically earn less than. And I've talked on the show before about how sometimes I think the security of a W2 job can be a little bit of an illusion, but from a planning standpoint it does make it easier. This year we're looking at a different calculus because I have frankly no idea how much money I will be able to to earn Running a scaled back version of Money with Katie Independently, there is not a single dollar that is guaranteed to come in, which makes projections of any kind pretty challenging. So to start I am going to pull up a fresh version of the new Wealth Planner and I'm going to just list out the possible sources of income and assign a conservative gross income estimate to each of them. So if you were doing this and you had a W2 job and maybe you have a side hustle and maybe there's something else that you've been working on that you're thinking you might be able to turn into a stream of revenue for yourself, I think it's helpful to look at all the sources of income that are coming into your household and just start assigning conservative estimates. So for me, the first and I'm hesitant to say only, but at this point it's safe to say it's the primary source of income will be any sponsorships of the Money with Katie Newsletter I am going to continue to send out my weekly newsletter even after this show ceases production. So if you would like to subscribe you can do that in the show notes. And then of course there are smaller sources that I may be entitled to. So think things like book royalties or if I do speaking engagements or presentations for companies, any remaining digital product sales. I am just going to assign a conservative estimate for what I think those lines of business might bring in annually if I were to do it a reasonable amount. And then finally I'm going to add a conservative estimate for my share of revenue from my podcast Diabolical Lies. So what I think doing this little exercise actually highlights is that the trade offs of self employment as opposed to salaried work are kind of paradoxical because even though no one line of business is guaranteed here, there are a handful of of sources of income, or legs of the stool, so to speak, that could produce revenue. Now this is in comparison to a singular W2 paycheck where, as I've noted, the money is guaranteed unless the job goes away. So already having done this, having sat down and looked at all these different options, I'm feeling a little bit safer. Having enumerated the possible paths to income, since none of it's guaranteed now, I am going to total all of them together. I'm going to add my husband's income into this because we pool our resources and I'm going to put that number into the tax liability table in my wealth planner because I want to be able to estimate what that total is going to translate to on a monthly take home pay basis. Now again, if you are self employed or you've ever worked for yourself, you probably realize this, you're going to have really great months and you're probably going to have really lean months. We're going to come back to that shortly. But my intent now for planning purposes and what I always encourage people to do, if you have an income that fluctuates and that is subject to things like commissions or bonuses, and you're just not quite sure, it's still helpful to get a sense for what your average monthly income will be. Otherwise planning spending is just too difficult. So because a much larger portion of the income that our household will be earning next year will be self employment income, I'm going to make sure to note that in that tax table. So it correctly estimates my payroll or self employment taxes. So for the unaware, when you have a salaried job, you pay a 7.65% payroll tax on up to around $170,000 of wages. So your employer is also paying 7.65%, you're just not seeing that income first. But when you're self employed, you have to play both roles because you're the employer and the employee. And so you pay both shares, which gives you the 15.3% self employment tax. What that represents is what is called payroll tax if you're working a W2 job. So in the tax liability table of the wealth planner, you can put in what portion of your total income is self employment, how many dollars of the total is self employment income, and it will calculate the correct self employment tax on that total. I'M also going to put in my flat state income tax rate of around 4% and I'm going to create a target goal for my solo 401k contributions. So if you are self employed and you don't have any full time employees, you can open and fund a solo 401k for yourself. And the contribution limits are typically often much higher than for W2 workers. My solo 401k used to be with Vanguard and then Vanguard shuttered that program. They no longer facilitate solo 401ks and I believe they sold their 401k business to Ascensus. So now my solo 401k is with a firm called Ascensus. It's fine. I'm not sure that I would go out of my way to recommend it or open a solo 401k there if I were starting over today. But solo 401k administration can be a little bit harder to find. So I also like SEP iras, which you can open at Robo Advisors. You can get a SEP IRA which works in a similar way at a betterment or an M1 finance, what have you. So the reason that the limit though is so much higher is because similarly to how the payroll tax works, you get to make contributions as the employee and the employer. So the employee contributions for a solo 401k are the same as a salaried employee's, but the employer contributions are about 20% of your net business income, up to a whopping $72,000 per year total in 2026. I'm going to link an article in the show Notes that gets into the differences between solo 401ks and SEP IRAs. If you are in a similar position and you're trying to figure out which one to open. So to pick my target, I am going to aim for the full employee contribution. Now, the employee contribution to 401k is next year. The upper limit is 24,000 dol. And then I am going to calculate what 20% of that remaining estimated net income is. Because remember, I can also make an employer match. I'm going to look at that total and I'm going to essentially make that the goal. So finally, to make this tax breakdown as accurate as possible, I'm also going to take my husband's 401k contributions into account and I'm going to add those in as well. So getting that overall income and deductions estimate is going to give me the estimated monthly breakdown for gross income, total tax liability, or in other words, on average how much will need to be set aside to pay the entirety of our federal, state and self employment taxes and then an estimated take home pay post 401k contributions. It is a little nerve wracking because the average could mean making $0 for five months and then $100,000 in two weeks. Like you just really don't know. But a monthly estimate allows us to budget for our expenses and scale up or down accordingly, most of which happens on a monthly basis. More effectively, we will get back to the budgeting and the spending portion of this sort of planning after a quick break. Every holiday shopper's got a list, but Ross shoppers, you've got a mission like a gift run that turns into a disco, snow globe, throw pillows and PJs for the whole family, dog included. 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And if you're looking for the perfect gifts for everyone on your list, the Skims Holiday Shop is now open@skims.com. Okay, so if you're following along in a wealth planner, I am now looking at my example monthly goal breakdown table that is on the dashboard tab next to the tax table. So now I'm starting to think ahead to my expenses and part of my reasoning for going independent again and cutting back on my workload is to give myself more free time. And in anticipation of the fact that I sort of felt like this was something that I was going to want to do at some point, we did make an effort to downsize our cost of living this year. Now sometimes more free time leads to lower expenses because you're spending less on convenience items. So if you're somebody that spends a lot of money on like delivery services and Eating out and things that save you time. You might find that with more time you're going to spend less, but other times it leads to higher expenses because you're finding new ways to fill your time, which often costs money. Obviously at this point I don't really know how that's going to shake out for me yet. So I have decided to just use my 2025 spending habits as my best estimate that I have for what we are likely going to spend next year. So in order to get the most accurate estimate possible, what I'm going to do is go back into my year in review tab for the planner that I've been filling out in 2025 and I'm going to limit the review period to January through October because Those are the 10 months that I have data for at this point. So if you know what you've spent this year, if you have your own system or maybe you have a wealth planner, I would actually look at like what went out over the last 10 months. And then I'm going to calculate and look at the average spent per month number in the year at a glance table in that year in review tab. This tells me how much my husband and I have spent this year so far, divided by 10 months basically. And again, this is just how I'm pulling mine. You might have your own tracking software that does this for you, but I want to get an accurate estimate for the average monthly outgoing money. So I'm looking at that and I'm doing a few things. First I'm panicking. Then I'm swiftly moving through the stages of grief and I'm reaching the bargaining phase. That all right, that's a little high, maybe a little higher than I thought thought it was going to be. But I think it is probably a fair estimate for figuring out the total outgoing funds that I need to plan to support. And I am not going to tell you the number because I don't have a humiliation kink. But it's over $10,000 and I think that's all you need to know. So now that I know that number and I know what my husband's take home pay is, I know what the gap is. So put another way, I know how much net income I need to produce after taxes and retirement contributions to cover the rest of our average monthly expenses. And it's going to work out to, we'll say roughly half and half. Now this is valuable because it gives me an idea of the minimum income that my business moving forward needs to produce in order to be considered viable for supporting our lifestyle. And it also tells me how to plan for worst case scenarios which is that you all decide you hate me, my career is fucked and I never make another dollar again. So that's the number that I'm going to go to my CPA and I'm going to say, hey, I would like to be taking home this much each month to meet my expenses. Is it feasible to set that up as a direct deposit based on the projections and income that we have set out for the business? And the reality is that it probably will be hard to say for a little bit, at least until we get things started and have a better sense for what it is I'm actually going to be doing. Which brings me to contingency planning. Now I think normal people probably just call this an emergency fund, but I am self important so I am going to call this a contingency fund. And this is my just in case you get canceled cloaked in Gucci and scandal money. So here's how I'm calculating this. I'm going to look at our monthly average spending which we already figured out, right, because we sat down, we looked at the expenses. I'm going to subtract my husband's take home pay and then I'm looking at the resultant number. What am I on the hook for providing each month in order for us to pay our bills? And then I'm going to multiply by 12. I'm multiplying by 12 because I want the ability to have a year long crash out shave my head 2017. There is no explanation, only reputation style crash out. Okay, but in all seriousness, it basically gives me a year of Runway to figure life out. To figure out what's next for me if I'm not making any money or if I need to take some extended time off. So I always want the ability to be able to transfer from this account into our joint checking in order to pay off a credit card or pay our rent. You might be wondering how this is different from an emergency fund. And the reality is that it's really not. But because we have always been a household that has had two W2 incomes plus typically other 1099 projects, we've never had a true emergency fund set aside for the purpose of replacing income because we've never really needed it. And I always felt comfortable knowing that we could pull money out of a brokerage account if we needed to. But that sense of safety and security ends now, folks. And if you are working in a household with multiple W2 incomes, I don't think it's necessary to have 12 months of expenses in a savings account or 12 months of your half of expenses in a savings account. I think you're probably safer with three to six months. But with the transition to full time self employment and my career being sort of a question mark starting in January, this just gives me a little bit of comfort that I can take my time. So we have cash that has not been invested yet hanging out in various accounts. I am basically designating a high yield savings account for this purpose and I'm going to move some money around into that account and use it like a fallback fund. Going to spend the rest of the year funding this account and setting it aside. So now I've defined, okay, worst case scenario is no money comes in for the next 12 months. Let's get some funds earmarked for that. Okay. So now all that's left to do really is flesh out the finer points of the budget. One thing that I would like to do differently this year than I have done in years past is identify which components of the budget are necessary and non negotiable, relatively speaking. So I'm thinking things like our rent and Sam's special cat food. These are things that I am going to continue to find a way to pay for, but then also the things that could be more flexible if necessary. So our rent will hopefully stay as is, which like I said, is a lot lower than it was in California. We intentionally downsized so that our budget would be a little bit easier to work with and the pressure to earn money moving forward wouldn't be as intense. Although unfortunately other things got more expensive. So our car insurance, for example, nearly doubled in price when we moved to our neighborhood in Colorado. I have paid off my medical debt from my colonoscopy last December, lol. But I have started having to get other medical interventions we'll say that have sort of replaced those costs. So that's been on the expensive side. And as I mentioned, we're going to have about $1,000 a month in health care costs. That's just to cover the premiums. So I would like to plan for that to continue. Now for the rest of our budget, I would say most of these expenses are probably going to stay around the same. We're looking at food costs, travel costs, other various living expenses and I don't really expect our lifestyle to change that much. So I'm going to just carry those forward the averages from 2025 and plan those for 2026. Okay. And last but not least. Finally, I am going to copy paste my account names and my final 2025 balances, or I guess October 2025 balances, into the dashboard tab of this fresh wealth planner that has my new spending and income projections in it. And then I'm going to pop over to the financial independence tab to see what this means for the future. So if you don't use a wealth planner a, come to our class on December 3rd and see what it's all about. But if you're like, okay, well what does that mean? The financial independence tab is essentially a calculator that takes things like your current net worth, your current income, your current spending, and then it gives you projections according to your assumptions about things like future rates of inflation, average annual returns in your investment accounts, what your preferred safe withdrawal rate is, when you would like to stop working, any temporary expenses that you may have now that are going to fall off in a couple of years, it factors all of that in and then it projects when you are expected to hit financial independence or the point at which you could live solely off your investment income. So in traditional financial planning, you could sort of of just call that retirement, right? It's the crossover point where your investments will cover your spending. But in the extreme sports world of personal finance, we're calling it fire Financial independence retire early. So that's what the FI tab is designed to do. And that's why this is my last step in trying to plan for 2026, is building in all these inputs, doing my best to make these conservative estimates, getting some parameters around what money I would like to set aside and mentally earmark as a fallback fund, taking some of this to the new CPA who I'm working with, but then finally saying, okay, and what does this mean for the future and do I need to make any changes now? One thing that I'm noticing immediately when I fill out this PHI tab is that our safe withdrawal amount this year, or put another way, around 3.5% of our long term invested assets would be enough to cover my half of those household expenses. So I think that can also be an encouraging indication if you are someone that has been working toward FI for a while and you have been diligently investing, trying to get to that point. And you want to understand how much of that progress could maybe fill in some gaps for you if you do need some time away or you find yourself without income for a little bit. It's a little bit like we talked about with the Jillian John's root episode, whether you find yourself in an intentional or unintentional mini retirement. It's nice to see what is my safe withdrawal amount right now? Maybe I'm not five, but what is the amount that my investments could support if I needed it? And of course this is also just a really good opportunity to make sure that you are still heading in the right direction and that your plan has not totally whipsaw you off course at some point. I think, especially if you're somebody that primarily does annual planning and doesn't do monthly or quarterly check ins, it can be a little alarming how easy it is to deviate from what you set out to do. So I hope you either learned something new today, got an idea, or got some inspiration from this as you are thinking about your own 2026 planning. Or maybe you're just a little homeschool jungle freak who likes listening to someone else make financial transitions. I don't know you do you? But if you would like to get together on December 3rd to go through this process with the new planner and learn how to use it, we will see you then. That is all for this week and I'll see you next week for an interview. Our show is a production of Morning Brew and this episode was produced by me, Katie Gaddytasan with audio engineering and sound design from Nick Torres. Devin Emery is President of Morning Brew Content. Here we have the Limu Emu in its natural habitat, helping people customize their car insurance and save hundreds with Liberty Mutual. Fascinating. It's accompanied by his natural ally, Doug Limu. Is that guy with the binoculars watching us? Cut the camera. They see us. Only pay for what you need@libertymutual.com Liberty Liberty Liberty Liberty Savings Very underwritten by Liberty Mutual Insurance Company Affiliates. Excludes Massachusetts.