Saving for Retirement as a Freelancer

There are many reasons that people are drawn to life as a freelance worker in the gig economy. You get to pick your projects, choose your schedule, and learn new things with every job. However, the downside for many is that due to the often sporadic work, it is hard to even think about saving and preparing for retirement. In fact, sometimes it can seem nearly impossible to save any money at all after paying for your monthly expenses, but where there is a will, there is a way. 

We have composed this guide that will help you to understand your options, add to your savings, and take advantage of tax rules so you can have money available when it comes time to retire.

Account for what you’re bringing in

For many young freelancers, saving money for retirement is likely the last thing on their minds. However, the fact is that unless you have a substantial sum of money coming in regularly, it is a good idea to at least start building a nest egg or an emergency fund so you can stay afloat when the gigs slow down. Having money on the side can also be helpful if you ever want to fund a new passion project or start a side business. 

The first step to budgeting and saving money for the future is to look at every income stream you have while also finding ways to pay out less whenever possible. That means that you need to look at every job that you do during the month and compare that with your total expenses and have a plan for things you can cut during months when money is tight.

Keep in mind that the money you bring in is considered taxable income, so you’ll want to keep track of what you earn so you can plan accordingly regardless of if you pay annually or quarterly. Since freelancing is your business, you can cut down on how much you owe every year by deducting your expenses. As a freelancer, expenses can include the cost of your software, computers and tablets, office space, mileage necessary to drive to in-person jobs, conferences you attend, and more. 

It is important to understand taxes because you can use a portion of the money that you save for your retirement and savings accounts.

All about savings accounts

Some people avoid saving for retirement because they think that if they only add a little here and a little there that it won’t add up to anything. But in reality, every little bit helps, and by putting your cash in the right types of accounts, your money will work for you.

For instance, at a minimum, you can start your retirement fund by putting your extra money into a high-interest savings account. Every month, the money you put in will accrue interest, and although it won’t make you rich overnight, it is nice to make money just by being responsible. 

You can also invest your money into a Roth IRA, which is a retirement account where you pay taxes on the money that you put in so you aren’t penalized if you must take cash out before your retirement age. 

If you can’t afford to pay taxes now, then you can also choose to open a traditional IRA, where the money you put in is tax-free until you reach retirement age. This is a great option because, in addition to avoiding tax penalties on your savings, knowing that you will be taxed if you take money out early may be a good deterrent, so you let that money grow without touching it unless absolutely necessary. Remember that you can choose to put as little money as you want into these accounts depending on your income for the month.

How to save money

While you do not need to invest your entire paycheck, it is wise to save as much money as you can. There are many ways that you can reduce costs and expenses, even when it comes to the necessities. 

For instance, even though you likely won’t get health insurance from the companies where you freelance, it is still a good idea to be covered. Insurance is not always cheap, but you can save some money on your premiums by choosing a higher deductible. You’ll have to pay more if you are hurt, but if you are safe and don’t get sick often, then you could save hundreds of dollars. If you use Medicare and have prescriptions, you can save money by looking for coupons and shopping around for the lowest prices.

Many freelancers also need to travel, but a car can be a costly investment if you are not careful. If you need to drive for your job, then you should do so responsibly and avoid speeding, so you don’t waste money via poor gas mileage. Also, you should keep your car well-maintained so it will last for years. If you want to save even more money for retirement, then consider not having a car at all and instead take public transportation or hail an Uber when necessary. 

When you are off the clock, remember that you can also cut down on expenses by making simple changes like brewing coffee at home instead of going out to Starbucks every day and by canceling the streaming services that you pay for every month but don’t watch. Put a portion of all this saved money into your retirement accounts.

As you can see, if you are determined to save for retirement, then you can make it happen. If you aren’t saving now, then it is essential that you start sooner than later, so you can enjoy your golden years without stress.

About the Author: Sam Bowman writes about people, marketing, wellness, and how they merge. He enjoys getting to utilize the internet for community without actually having to leave his house. In his spare time he likes running, reading, and combining the two in a run to his local bookstore.