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A Freelancer's Guide to Saving and Investing

How to save as a freelancer

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A Freelancer's Guide to Saving and Investing

  1. 1. A Freelancer’s Guide to Saving and Investing
  2. 2. 2 | A Freelancer’s Guide to Saving and Investing Life as a freelancer can be pretty great. You can often set your own schedule, decide which jobs to take, skip, and work from almost anywhere in the world. However, there’s one thing that those with a side gig don’t have that many people who work for larger companies or corporations do have: employer-sponsored retirement plans. The perks of these sponsored plans can include 401(k) matching and certain tax benefits. When you’re a freelancer, you need to decide for yourself how much to set aside. There is always the unpredictable nature of freelancing which makes it difficult to put money away in a savings account for emergencies, or for the day you buy a home or new car. Any freelancer can become a smart saver by having both long- and short-term plans for their finances. Here are a few things every freelancer should keep in mind when saving and investing. A Freelancer’s Guide to Saving and Investing
  3. 3. 3 | A Freelancer’s Guide to Saving and Investing In 2015, almost every working individual has a checking account. In fact, a recent study shows that only 7.7 percent of Americans do not have bank account, which places them squarely in the minority. Twenty-six percent of adults do not have money saved for emergencies. That means they’ll have to pay for an unforeseen expensive car repair with a credit card, by borrowing money, or with money they would use for daily expenses like rent and groceries. As a freelancer, your savings account is just as important, if not more important, than your checking account. So many people think it’s hard to save, but the fact of the matter is, you need to save a little bit out of every dollar you earn. Even if you’re only earning $100 a week, setting aside $10 gives you $10 more in your savings account than you would’ve had otherwise. Choose the Right Savings Account
  4. 4. 4 | A Freelancer’s Guide to Saving and Investing Your first step in building a solid savings foundation will be choosing the right bank account. Most banks will offer you an interest rate on your savings account. While rates aren’t particularly high right now, you will want to shop for the highest rate you can find. Generally, online banks will offer the best interest rates because they are able to cut overhead costs by not having any physical branches to maintain. The money they save goes back to benefitting their customers. Don’t be scared by the thought of having an online bank without any physical branches; many of these banks have great online and telephone customer services, and you can carry out most transactions via their website or mobile app. And then, of course, getting money is as easy as hitting up the nearest ATM. There are two types of savings accounts that are good for emergency funds, or places to park money while you save for a big purchase like a house, car, or dream vacation - money market accounts and onliutne savings accounts. Because they both offer slightly higher interest rates than what you’d get with a checking account, the federal government only allows you to take out money a certain number of times each month (you can deposit money as often as you’d like). Money market accounts Choose the Right Savings Account
  5. 5. 5 | A Freelancer’s Guide to Saving and Investing can often be accessed with an ATM card, while savings accounts generally require you to transfer money back and forth from another account, usually a checking account. You can take some of the pain out of saving by automating your savings. If possible, have a certain amount of money automatically transferred to your savings account once or twice a month. This is easier to do if you have a regular paycheck (for instance, if you get paid every two weeks, or on the 15th and the last day of the month). If your freelance income is a bit less predictable, automated savings may not work for you, which means you have to be disciplined about setting aside part of your paycheck every time you get paid. In terms of how much you should save, it should be your goal to have 6 months worth of income in your savings account in case you can’t find work or are unable to work. On top of that, you’ll want to save for any big purchases you think you’ll make down the road. Even if you don’t see yourself buying a house or car in the next few years, it’s not a bad idea to pretend like it’s a possible and go ahead and set aside that money. If you don’t make the purchase, the money is there for you to eventually spend on a major purchase like a new computer or furniture. Or you can, of course, let it continue to earn interest. Choose the Right Savings Account
  6. 6. 6 | A Freelancer’s Guide to Saving and Investing Saving for retirement is different than putting away money in your emergency fund. You may never be unable to work for 6 months, or you may get around town on your bike or the bus and have no need to purchase car, reduce the need (at least in theory) for a savings cushion. The same cannot be said for retirement. All of us will someday reach an age where we are no longer able to work. And not only will we be unable to work, we’ll also have medical expenses that we don’t have when were are in our 20s, 30s, or 40s. Experts say that people in their 20s should aim to put 10 to 15 percent of their income away for retirement. This number is significant, but not unreasonable. While some companies match 401(k) contributions, making it so employees have to set aside 8 or 9 percent to surpass that 15 percent mark, freelancers are preparing for retirement all on their own. Retirement
  7. 7. 7 | A Freelancer’s Guide to Saving and Investing There are a few different options for saving for retirement. One that you can probably find at an online bank or the one down the block from you is an IRA. An IRA is an individual retirement account that has benefits and restrictions design with retirement in mind. There are two types of IRAs: Roth IRA and traditional IRAs. A Roth IRA contributions are made after taxes are taken out and you do not have to pay any taxes on your distributions; traditional IRAs are funded with pre-tax money, and you pay taxes on the money when you take it out. One way to choose the IRA that’s right for you is deciding whether or not you’ll be in a higher tax bracket when you retire, or if you’re current tax bracket will be higher. That way you can decide whether you want to pay taxes on that money now, or years down the road when you retire. Retirement
  8. 8. 8 | A Freelancer’s Guide to Saving and Investing Unlike money market accounts and savings accounts, IRAs have strict rules on when you can access the money you put into them. These are meant to be vehicles for saving for retirement and usually earn slightly more interest than other types of accounts. The federal government has penalties that discourage people from pulling money out before they enter retirement. The penalties for each are similar but also slightly different. For instance, you will generally get hit with a 10 percent tax for taking money out of either kind of IRA. The only exception is with a Roth IRA; if your Roth is at least 5 years old and you are accessing the money because you have become disabled, your beneficiary is receiving the money because you have died, you’ve reached age 59 ½, or you are using at least $10,000 of the funds to purchase your first home, these are considered qualified distributions and are tax and penalty free. Retirement
  9. 9. 9 | A Freelancer’s Guide to Saving and Investing Saving and investing your money for the future is a personal-finance must. But you shouldn’t neglect the day-to-day financial needs that can help you save money and have a better retirement down the road. Many Americans struggle with some form of debt, whether it’s credit card debt or student loan debt. Depending on your interest rates and the amount of debt you have, it may be smart for you to adjust your savings plan so you can pay off those debts. While you should always be putting something toward your retirement and emergency fund, if you have major debts that you’re trying to pay down, you may want to take a year to focus on that before you start putting money (Julie: there’s is a part of this sentence missing) Paying of Debt and Being a Smart Spender
  10. 10. 10 | A Freelancer’s Guide to Saving and Investing Saving is what you do when you decide to make your own lunch instead of going out to eat, or buying a car that’s less flashy but gets better gas mileage is and is more reliable. Your checking account can be a savings tool as well. Look around for a checking account that has minimal fees and maybe even gives you a bit of interest on your money. It may take some time, but after look around for a while, you’re sure to find one or two financial institutions that make good financial sense. Paying of Debt and Being a Smart Spender
  11. 11. 11 | A Freelancer’s Guide to Saving and Investing Talk to a Financial Professional Personal finance can be a tricky realm to navigate. That’s why it’s almost always worth your while to meet with a financial planner who can help you make the most of your money. You may think that you don’t make enough money to warrant seeing a professional, but that is almost never the case. In fact, those of us who aren’t making millions of dollars a year are often the ones who need the most financial advice and assistance. A financial professional can you help you decide which kind of product to use for your retirement, how much you should be spending each month, and help you built a plan for getting out of debt. All images are subject to copyright. Sources: https://www.creditdonkey.com/average-american-savings-statistics.html http://time.com/money/2791164/how-much-income-to-save-for-retirement/ http://www.cnbc.com/2015/04/28/the-freelancers-guide-to-saving-for-retirement.html