Many of us plan for our future selves and life after retirement. A major part of that is saving and managing your finances. When it comes to methods of saving, we look for conventional ways. However, earning a living as a freelancer can be a great way to save money for the future.
As Cecile Corral says in The New York Times, the coronavirus pandemic in 2020 came as a shock to her career and finances. Until that point, her plans for retirement savings were not of much focus. To offset the impact of the pandemic on her family and finances, she soon began freelancing.
Freelancing allowed Cecile and her husband to pay the bills on time. But as a consequence of that, her retirement savings plan was on hold. In fact, for most freelancers, saving for retirement can seem more challenging than for other workers. The different cash inflows and unpredictable outflows can be overwhelming.
The biggest challenge for freelancers to save for their retirement is that it depends entirely on their choices. In simpler words, contrary to conventional jobs and retirement plans, freelancers need to take the full initiative. This includes planning, executing, and taking full responsibility for their retirement savings plan.
On the bright side, there are multiple savings methods that freelancers can carry out. This will help them to navigate around this challenge much more effectively. Below are some of the best ways freelancers can start saving up for their retirement.
Creating an Emergency Fund: Planning well is the first step to securing a successful retirement fund. Therefore, you must first create an emergency fund.
Beginning with $1,000 can be a decent starting point. Savings for three to six months’ worth of spending is the optimum target. When you can pay your bills for a full year, you are in the safest position. Building an emergency fund is essential for freelancers because revenue fluctuations can cause you a lot of problems.
The Solo 401(k): The Solo 401(k) retirement plan allows you to save for retirement directly in your account. According to the latest reports, the yearly contribution ceiling for workers under the age of 50 is $20,500.
The government will allow freelancers to deduct taxes directly from their earnings. As a result, this is a good retirement planning choice for freelancers.
SEP IRA Saving Plans: Simplified Employee Pension Plan- Individual Retirement Account (SEP-IRA) is a retirement account that is available to firms of all sizes. It is an excellent savings strategy, particularly for self-employed individuals such as freelancers.
SEP-IRA contributions can be up to 25% of net income after costs. As a result, it can be a reliable source of income in addition to your regular income, which is an excellent way to save for retirement. Similarly, this plan is simple to implement and has modest operational costs. You can alleviate your cash flow problems by making flexible annual donations.
Health Savings Account: Freelancers are required to pay for their health insurance through a health savings account. If you have a high-deductible health insurance plan, you may be eligible to open a Health Savings Account, or HAS.
Because HAS accounts permit saving money with pretax dollars, they are useful for assisting with retirement savings. The account holders can withdraw the funds at 65 for any purpose other than paying for medical expenses. This makes it a terrific investment strategy for independent contractors.
Freelancers may find it difficult to save up for their future selves. By knowing these saving plans, the process of managing their finances may become much easier. To share your thoughts on this, make sure to join our forum. Register now to become a member to join the movement.