Being a freelancer means you get cool benefits like setting your own hours and working in your pajamas. Those poor chumps who work for a company (AKA “The Man”) get no such luxuries.
The one thing freelance workers don’t get that their corporate counterparts do is a retirement plan. You do want to eventually retire and enjoy the fruits of your labor, right? Do you really want to be writing marketing copy or designing websites when you’re 85? I doubt it.
Here are some steps you can take to ensure you can live comfortably long after you stop working.
1. Plan Your Budget
Before you can start putting money away for the future, you need to know where your money is going now. Set up a budget so you know exactly where your money is coming from and where it’s going.
A general rule of thumb is about 10-15% of your income should go to your retirement account. You don’t want to go broke saving for retirement, but you do want to put enough away that you’ll have enough to live on in your golden years.
It’s also advisable to talk to a certified financial planner. They’re invaluable in helping people manage their money wisely. They can help you determine how much you should be setting aside each month and how much risk you can take on. I also highly recommend a good accountant, who can help you sort out the various tax issues you’ll face as a freelancer and setting up a retirement account.
2. Set Up Your Retirement Account
If you work for “The Man” you will usually have help from your company in getting this set up.
There are a lot of financial instruments available: IRAs, 401(k), SEP IRA, etc. I’m not going to go into detail about these because it can get real complicated real fast. Again, a financial planner will help steer you in the right direction.
3. Make Saving Money A Habit
This ties in to creating a budget. Get in the habit of depositing money into your retirement account every single month. Consistency will go much further than depositing a lot on month, than nothing the next.
4. Consider Additional Investments & Diversify
Even with a retirement account, you can still invest a portion of your money. There’s everything from stocks to mutual funds. Learn about the market before you do this. And most importantly: stay on top of your investments (or have someone who is qualified do it for you).
Diversify your portfolio with investments in different industries, and include a certain amount of cash as well. If you’re doing it right, you’ll see your money grow over time (there will be dips and spikes along the way).
Why make additional investments? You can access this money before retirement if you need too. You can think of it as a “rainy day fund.” Keep in mind, however, that you’ll be paying taxes on money you withdraw from your investment account.
5. Buy Life Insurance
This is an important, but often overlooked, part of planning for the future. If you have a family, having life insurance is even more important.
Why? If, heaven forbid, something happens to you, life insurance will help your family pay off expenses (ie. funeral, debts, etc). The cost of a funeral alone can put many families in the hole.
There are tons of life insurance companies out there, each with their own pros and cons. Shop around and get the advice of a professional. Life insurance is one of those things where the amount you need depends on a lot of factors (lifestyle, expenses, income, future worth).
Being A Freelancer Is No Excuse For Not Planning Ahead
I understand that freelancers are a busy bunch. We are responsible for just about every aspect of our business. There’s also the actual work you do, which can be incredibly time consuming.
Part of your job as a freelancer should be planning for the future. You need that safety net. And since you don’t have an employer matching your contributions to your retirement account, it’s even more important to stay on top of it and get your financial affairs organized.
Have more tips for saving for retirement? Feel free to comment below.