From a flexible schedule to the ability to be your own boss, it is easy to see the benefits of freelancing. Unfortunately, working for yourself has a few downsides, as well. Not only is there no guarantee of work and pay, but you will also need to navigate through the process of paying taxes and saving for retirement on your own. Freelancers make up an estimated 34 percent of the workforce in the United States. If you are part of this group of self-employed individuals, finding ways to invest is key to your financial future. Here are a few tips to help you invest while freelancing
Understand the Percent Matters
If you are like most freelancers, your weekly, monthly, and even yearly income will fluctuate. This can be difficult when budgeting your bills and how much you will be able to save.
If you are paid a flat salary, you have the ability to designate a specific dollar amount to go towards savings. As a freelancer, you do not have the luxury of saving a set dollar amount each week or month because your pay will change periodically.
Thinking in terms of a percent instead of a dollar amount will be helpful. Allot a set percentage of your monthly income to go towards savings, retirement, and taxes. If you bring in more income one month, you will save more even though you are saving the same percentage.
It is important to note that most financial experts recommend saving between 10 and 15 percent of your monthly income.
Deduct When Possible
One great benefit of working for yourself is that you will be able to deduct certain expenses that are used for your business. This will alleviate some burden when it comes to filing your taxes.
Of course, deducting an expense that is not technically used for your business can result in serious penalties, so it is important to understand what is allowable.
Office furniture and equipment, such as computers, cameras, printers, and phones must be used for and only for your business to qualify as a business deduction. Mileage on your car and travel expenses to do work or meet clients are also expenses that qualify. Advertising, marketing, and insurance may also be deducted as a business expense on your taxes.
If you work mostly out of four home office, this can also be used as a deduction. To qualify, the office must be a separate room of the home that is only used for your business.
Taking these deductions will not put money into your retirement account, but it can reduce the amount of taxes you need to pay. Then, you will have extra funds available to add to a savings or retirement account.
Contribute to the Right Retirement Account
Working for a traditional employer will have its benefits when it comes to contributing to a retirement account. Many employers will match a percentage of what you are paying into a 401(k) plan, but freelancing does not give you that option. Thankfully, there are retirement accounts designed for the self-employed.
An IRA is one of the most popular options for freelancers because it is easy to manage. This individual retirement account offers a traditional method of savings that is not taxed until you take a distribution.
If you prefer a retirement account with higher contribution limits, opt for a Solo 401(k). This is similar to a traditional 401(k) plan offered by employers, but it is specifically designed with self-employed individuals who want to save without having an employer match.
Freelancing can be difficult at times, but by looking into these financial services, you can help ensure your financial future is protected.