In light of recent events, insert COVID-19, freelance work has seen a 41% increase over the past year. The surge of people interested in freelance leaves many wondering what being in control of their future really looks like.
Things like healthcare and retirement are directly in your hands when you work as a freelancer, so understanding how to manage your life and work is crucial.
Don’t worry though, we are going to fill you in on saving for retirement as a freelancer in this simple guide! We’ve got the top 3 tips you need, so let’s get started!
This might seem obvious, but studies show that 1 in 5 people don’t save any of their annual income. The trouble is, many people talk themselves out of starting a savings plan because they don’t know where to start, or they don’t have much to start with…but guess what…You have to start somewhere!
Consider starting small and moving just 5% of your income. The goal should be to work your way up to 20% of your income, but as we said, you have to start somewhere! Once you see your savings building up, it will encourage you to find ways to increase your percentage of savings over time.
If you are trying to learn how to save money as a freelancer or pay for retirement as a freelancer, understanding taxes’ complexities is a crucial step. Studies show that 90% of people cannot answer straightforward tax questions, and as a freelancer, you are responsible for paying your own taxes. If you don’t plan appropriately, you could end up owing taxes big time at the end of the year, which could dip into your savings.
Instead, plan quarterly tax audits to stay on top of your finances. Keep in mind that as a freelancer, you will be paying an additional 15% on top of your normal tax rate. Other factors such as where you live will also affect your taxes. The more you understand taxes, the better equipped you will be to save!
An IRA is an Individual Retirement Account. There are several options to choose from as a freelancer, such as a Roth IRA, Traditional IRA, or a SEP IRA. A traditional or Roth IRA can be set up using a bank or brokerage firm. With a traditional IRA, your contributions are tax-deductible; however, the Roth IRA is not tax-deductible.
A SEP IRA can be used in connection with a Traditional or Roth IRA. With that being said, keep in mind that you must be a business owner or self-employed to use a SEP IRA.
These tips for saving for retirement as a freelancer could make all the difference in the number of zeros in your bank account! You are in control of every aspect of your finances as a freelancer, so make every move count!
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