Saving for retirement isn't easy for anyone, but it's especially tricky for those who are freelancing. Here are some tips on how to get on track and save for your future.
For freelance creative workers saving money can be quite the challenge. Without the guarantee of employment you can go without income for weeks or sometimes even months. Alongside the challenge of finding work and paying the bills, freelancers also need to build a savings fund for when they retire.
If you haven’t started saving yet, we suggest you start now, otherwise you could find yourself way behind your retirement fund goals. In such case, you can’t bank on social security alone, with researchers from Case Western Reserve University and National University of Distance Education detailing how public systems like social security, have no capacity to guarantee a good quality of life for retirees. This sad reality underscores why you need to take saving seriously and start as early as you can. Unfortunately starting is the hardest part, as pointed out by Elizabeth Wallace in her article on saving for retirement. This is magnified by the irregular income that those in the gig economy experience. That said, take the first step towards saving, and keep the following in mind:
1. Create a budget with inconsistent income in mind
Budgeting lets you account for your expenses and cut back on them where possible. Unfortunately, freelance creatives are subject to what content consultant Lizzie Davey calls feast or famine cycles. It means you earn well in some months but get nothing in other months, leaving gaps in cash flow and making it a challenge to come up with a monthly budget.
Challenges aside, do start budgeting making sure to consider the ebbs and flows of your income. Start by tracking your income per project, as this will give you a clear picture of how much you’re earning. Then, start creating your budget using this guide: Allocate 50% of your after-tax income for necessities, 30% for your wants, and 20% for savings and debt repayment. In this way, you cover all the important bases and still have something when you're out-of-work.
2. Organize your finances with personal and work accounts
To better organize your finances have separate personal and work accounts. A USA Today article on overcoming the financial instability of freelancing suggests opening four accounts: two for your business and two for personal use. The suggestions are a business checking account for client payments and business-related expenses, and a business savings account for taxes and business emergencies. For personal accounts it is recommended you open a personal checking account for expenses like mortgage and utilities, and a personal savings account for your emergency and retirement funds. This will let you know where your money is going and which accounts you're drawing the most funds from, so you can better track both your spending and saving habits.
The best part is that you can improve your personal savings by using Catch. When you sign up with Catch, they will automate and simplify the process of saving by automatically setting aside a portion of your paycheck. You can then monitor your savings easily and conveniently — complete with all the tools a freelancer needs to succeed like auto withholding (Autopilot) and estimated quarterly tax payments.
3. Outsource financial help for retirement planning
Lots of people are ill equipped to handle the complexities of building a retirement fund because basic financial knowledge is rarely taught formally at school. Research by economists from Montana State University found that only 21 states offer courses with personal finance integration in high school, which has resulted in a financial literacy deficit amongst Americans. That many freelancers choose to handle their finances on their own only magnifies this problem.
Still, the gradual emphasis being placed on the teaching of personal finance in schools is an encouraging sign, one underscored by a predicted increase in those who specialize in financial matters. Indeed, using a Bureau of Labor’s projection, Maryville University’s career outlook for those with finance degrees notes how the industry will grow by 7%, making financial advisors more in-demand moving forward. While you will likely be one of the many who were not taught financial literacy at school, those with finance degrees can guide you in financial and business planning, with many also having expertise in marketing and portfolio management. And with that 7% increase predicted in the near future, the increased competition will mean that many will not be out of your budget range.
4. Don’t forget your Roth IRA
A Roth Individual Retirement Account (Roth IRA) is similar to the 401(k) and traditional IRAs where it lets you save and grow your money. The advantage of the Roth IRA is that your contributions can be invested and grow tax free. After you retire, you will also be able to make tax free withdrawals. One unique advantage of the Roth IRA is that you are allowed to withdraw your original contributions without tax or penalty, should you need money in an emergency prior to retiring.
Catch has you covered here too, as one of the benefits of Catch is that you can use the app to allocate portions of your income to areas that matter, like your Roth IRA, health insurance, savings, and tax withholding. This takes all the stress away, leaving you with more focus and energy for your money-making ventures.
Overall, saving can be hard for creative freelancers due to the unpredictable nature of their work many put it off — but it's not impossible. We hope this article will show you how it is feasible to be a creative freelancer and build up a savings fund for a comfortable retirement.