Blue Collar Wealth Management

While going to college used to be the go-to plan, many people are now interested in skipping piles of student loan debt and becoming an electrician, welder, plumber, or other type of trade worker. Blue-collar workers have a unique situation where they can often make very high salaries with paid training. Many also avoid the AI scares that office workers are dealing with.

But building blue-collar wealth requires a unique approach. First, you have the physical aspects of the job that can shorten your career. Then, you have to understand unions, retirement planning, and affording things you might need. For self-employed tradespeople, there’s even more to figure out.

Whether you’re considering a job in the trades or you’re well into your career, let’s look at some important steps you should take to build and protect your blue-collar wealth.

Focus on an Early Physical Retirement

For those working desk jobs, reaching the traditional retirement age in the mid-60s isn’t far-fetched. But it’s much different when you’re doing physical tradesperson work. Even if you don’t face a major injury, the everyday work takes a toll on your muscles and bones. Over time, it can be too much on your body to keep working full-time, possibly much earlier than your 60s.

You’ll have to plan your finances with that high risk in mind. This means you’ll likely need a larger retirement fund that can carry you through more years. That includes times when you’re still too young to get regular Social Security checks. The Center for Retirement Research at Boston College also noted the risk that tradespeople face when claiming Social Security earlier out of necessity and needing to live off smaller payments. Changing rules can create more risk.

So, when you’re still earning a good salary, save as much as you can for those uncertain times. Also, consider doing overtime for the extra pay when you’re younger and still have the energy, but be reasonable about it. Working more is counterproductive if it leads to injuries or breaks you down to the point that you need to leave trade work sooner.

Have a Career Backup Plan

Another thing is to have a plan for what you can do if full-time trades work is off the table due to a disability, aging, or other reason. You don’t want to drain your wealth too early when you might need to fund decades in retirement. Plus, even if you can afford not working, you might still prefer keeping yourself busy.

I recommend jobs that don’t require long hours or physically stressful work every day. It’s also wise to put your tradesperson skills and experience to use somehow. Whether you’re open to trying something new or want to shift your role, here are some ideas:

Managing other tradespeople or projects
Moving to the inspection area
Working as a sales rep in your field, which you can often do right from home
Teaching new tradespeople the work
Cutting back to part-time tradework as an independent contractor for flexibility
Trying something completely new that leverages your skills and strong work ethic
Building up some passive income streams that don’t require tiring work

Navigate Union Benefits vs. Private Investing

If you’re a union tradesperson, you likely have a pension plan that your employer puts money into. This is usually based on a dollar amount for every hour you work. Once you retire, you can get monthly payments from the pension fund based on your work history and the plan’s formula.

But there are rules around accessing this benefit. The employer-provided funds have to “vest” over a certain number of years, such as five, in which you meet minimum hour requirements and earn “credits.” Then, you have to wait until the retirement age set by the pension plan to receive the full monthly amount. An earlier retirement means a lower payment at best.

Some unions offer 401(k) accounts for tradespeople, too. This is great for a stronger retirement plan. You can contribute some money from each paycheck tax-deferred. If you’re lucky, your union agreement will also include a match, which is free money you shouldn’t miss, but that employer money also needs to vest (often over five years) for you to access it.

But if you’re a self-employed tradesperson who doesn’t get these benefits, you’ll need to look at other investing options. Privately investing is also wise advice if you’d like a stronger retirement safety net as a union tradesperson. Here are some account options people often use:

Traditional IRA. Widely available, this account could make sense if you currently earn a high salary as a tradesperson. You postpone paying income taxes on your contributions until you withdraw money in retirement. That saves you money now, but it creates uncertainty later. You’ll owe taxes on any earnings as well, so this isn’t the cheapest route if your post-retirement tax rate will be high.
Roth IRA. Using after-tax dollars, this IRA is worth considering in your lower-earning years. You’ll pay taxes when you make the contributions, so this is smart if you’re paying a lower tax rate now than in retirement. The benefit to you is that you won’t pay any taxes on withdrawals (including earnings) once you pass age 59 ½ and hold the account for five years. The IRS notes that income rules can restrict this option, though.
Solo 401(k). Since IRAs have pretty low contribution limits, you might prefer something that lets you save more as a self-employed tradesperson. A solo 401(k) lets you do this since you can make contributions for yourself as both the employer and employee. Usually, you’ll use pre-tax money and owe taxes on full withdrawals in retirement. However, the employee contribution side may allow for Roth contributions for flexibility.
Taxable brokerage account. Unlike the other accounts, this one doesn’t usually give you tax benefits now. But you get tons of flexibility to open an account at any brokerage you want, invest in more types of assets, and contribute without limits. I consider this a nice supplement to tax-advantaged accounts for likely early retirees, such as tradespeople, because you don’t have to wait until a certain age to make withdrawals. The taxes can get more complicated, though, and require planning.

Either way you go, I recommend using a good retirement calculator and automating your contributions. This will clarify how much you need to save and ensure you make progress.

Approach Tool and Truck Financing the Smart Way

Union tradespeople may only need to buy some basic tools for work, while self-employed tradespeople have to shoulder the whole cost. You might need to figure out how to finance expense tools, equipment, and even a work truck. This can especially be hard when you’re new to trade work and not bringing in enough revenue to cover such large expenses.

You don’t want to destroy your wealth with the wrong financing moves. So, when you do need to purchase something for trade work, I recommend making sure you really need it and doing the cost-versus-benefit math. Ultimately, not every trade business purchase is a good investment.

Don’t just buy an expensive work truck with a loan because you think it will help you drum up business. Look at how much you can realistically expect to earn after subtracting expenses and considering added costs, like maintenance, insurance, and gas. Then ask yourself whether you can justify the cost and monthly payment.

You should also check into different financing options for tradespeople. Self-employed tradespeople might use equipment financing for expensive machinery and vehicles but turn to business credit lines for smaller expenses. It’s also worth checking the Small Business Administration’s options, which often have lower rates and more reasonable payment terms. And no matter which financing option you choose, always shop around for good terms.

Don’t feel like you need to buy everything new either. Leasing is a worthy alternative for equipment. The same goes for borrowing or renting things you only need for a short-term project. If you do prefer buying, don’t overlook going the used route. I just recommend sticking with reliable brands and considering the condition of the vehicle, tool, or equipment. Also, don’t be so cheap that you buy something unsafe.

Reduce Your Risk from the Start

While the topics above are especially important for building wealth as a tradesperson, you can do many other things to reduce your risk from the start. Here are my tips for building and protecting blue-collar wealth:

Don’t mistake your gross income as your actual pay if a self-employed tradesperson, as that can lead to overspending and debt.
Get disability insurance from your union or on your own to protect your income.
Keep at least three months of expenses in an emergency fund to cover medical bills, income fluctuations, and unexpected expenses.
Don’t ignore health problems, which might become serious and put you out of work.
Stay away from unnecessary debt, both personal and business, as it can quickly add to your costs and strain your budget.
Always budget your income and monitor your spending.
Have a realistic age in mind when you think you’ll retire from blue-collar work and move on to something else.
If self-employed, don’t mix your business and personal finances since this makes everything more complicated.
Check and update your blue-collar wealth plan at least every year.
Look into less demanding income options early on, like helping with project planning, renting out equipment, or teaching new tradespeople.
Choose the right business structure (if self-employed) to protect yourself legally and financially in this often dangerous type of work.
See a retirement planner or financial advisor; some even specialize in serving tradespeople.

Frequently Asked Questions

How can tradespeople deal with fluctuating income?

An emergency fund helps fill the gaps if you’re low on work or in between projects. So does budgeting based on an average or low expected income amount to better control your spending. Backup income streams outside of trade work is also a good plan.

What’s the best way for a tradesperson to save more for retirement?

Manage your budget well so you can put money in more retirement accounts, such as a traditional IRA, or boost your 401(k) contributions (if available). Saving more seriously when you’re making overtime or in a busy season with projects is also helpful.

What’s the best business structure for self-employed tradespeople?

The best structure will protect you financially and legally and not too much hassle to running your business. Speak to an accountant first, but LLCs are common and don’t complicate taxes much. An S corporation might make sense if you’re a high earner but requires more work.

Can tradespeople write off expenses on their taxes?

If you’re self-employed, you usually can as long as they’re “ordinary and necessary,” as the IRS says. Employees usually can’t, unfortunately, but your employer should be providing or reimbursing you for most of the necessities for your trade job.

The information provided on this website is for general informational and educational purposes only and should not be considered financial, investment, legal, or tax advice. While we strive to provide accurate and up-to-date information, we make no guarantees regarding the completeness, reliability, or accuracy of any content. Any financial decisions you make are your responsibility. You should consult with a qualified financial advisor, accountant, or other licensed professional before making decisions based on information found on this site.

Past performance is not indicative of future results. Any examples provided are for illustrative purposes only and may not reflect your individual circumstances. By using this website, you agree that we are not liable for any losses or damages arising from your reliance on the information provided.

Sources:

What's Hot

Alternate Real Estate Investing Opportunities

Hobby Asset Investing

Creative Class Cashflow

Creative Class Cashflow

Living Cash-Only for a Month: Will It Change Your Spending?

Mid-Life Career Pivot Finances

Single Parent Entrepreneurship

How Much Money You Really Need to Feel “Financially Comfortable”

The Biggest Financial Mistakes People Make