5 Money Tips That Will Save Freelancers
By 2020, it’s expected that freelancers will be 50 percent of the entire workforce.
The gig economy continues to outperform traditional corporate growth. And while independent work and the associated autonomy are not without charm, it does not come with financial security, health care, paid vacation and systematic funding for your later retirement.
Freelancers – a broad group of lawyers, writers, IT workers, designers and virtually anyone working daily or professionally – may value the freedom that comes with putting together a series of jobs and setting their own working hours and pace. But as a group, they do not do such an excellent job of sticking to their budget. According to Polish’s survey for QuickBooks in March 2018, 36 percent paid no taxes last year – some because they could not earn enough to owe anything, and others because they did not know how much they did. That’s not good in both cases.
While we talk about managing finance as a freelancer, we should also hire contract workers. Every fifth American job is contracted by a worker. This emerges from a Marist / NPR survey conducted earlier this year. Entrepreneurs are not employees and usually do not receive benefits. So for those who work for themselves and need a little help to pay bills on time and maybe save a bit for the rest of the road, here are some ideas:
Organize yourself with an app for freelancers.
As a freelancer, you not only do the work for which you are paid by people, but you also run a business – you. So you have to have a business infrastructure. You need an organized method to track assignments, bill customers for your work, and ensure payments are received and recorded.
You also need to know what your business expenses are, including whether you need special licensing, insurance, accessories, space, equipment, etc. And of course, you have to keep an eye on everything: when invoices are due, what you spend on business, etc.
Fortunately, many apps can help you. By invoice, you can create, manage and track all your invoices through a single dashboard. Do you often send or sign contracts? Try to shake.
Hub staff quotes what he calls the best 29 apps for freelancers, and more than a few are just concentrating on keeping you focused.
Do not forget the taxes – everything.
If you are a freelancer, you are considered self-employed. Therefore, you must file an annual income tax return and pay your estimated tax quarterly.
But freelancers also have to pay a social tax to cover Social Security and Medicare taxes, which are usually withheld by wage earners.
If you have net income – the amount you have earned, minus your expenses – of at least $ 400, this amount is subject to the 15.3 percent self-employment tax. This “additional” tax consists of 12.4 percent Social Security Tax, which applies to your total net income, up to a ceiling of $ 128,400 in 2018 plus 2.9 percent tax for Medicare. A significant difference in freelance work is that wage earners receive help from their employers, who contribute half of it, to pay their share of Social Security and Medicare. The Medicare self-employment tax has no income cap, but after $ 200,000 adds another 0.9 percent.
Do not think that this tax does not apply just because you are retired and now collect social security and are on Medicare. The self-employment tax rules apply regardless of how old you are and whether you already have Social Security or Medicare. The IRS Independent Control Center can help you understand your obligations.
Some programs to help you keep your taxes as a freelancer are to track Intuit QuickBooks, MileIQ, Miles and TaxBot. Do not throw away the H & R Block app for freelancers.
And for those who believe that keeping records is for the birds, and the IRS will never waste their time on potatoes as small as you: know that small businesses also do their fair share of audits. You are not immune. This guide might be useful if you receive a letter from the IRS.
Plan for income Ebbs and flows.
Whether you work as a production assistant or as a seasoned accountant on movie sets, you need to calculate for dry spells. Nearly 50 percent of contract workers have incomes that vary from month to month or seasonally.
The trick to keep things in balance is to determine what your annual spending is, and then divide that number by 12. That’s the target amount you should earn every month. In a “good” month, you may be able to achieve that goal, but you understand that a “not so good” month is probably just around the corner – so set aside money from the “good” month.
Do not forget to add something for emergencies and future purchases. Do you need a new car soon? Hope to buy a house someday? Would you like to go to your cousin’s wedding in London in the fall? Financial planners propose hiding one month of income for an emergency fund plus an additional three to four months’ average income in reserve to cope with freebies-related burglaries.
Budgeting with fluctuating income is more difficult than you think. Financial experts advise entrepreneurs to earn 50 percent of their income.
Freelancing requires discipline. What you do in a given month is not all for immediate consumption.
Do not forget to budget for health care.
The individual mandate that every person must be insured under the “Affordable Care Act” face or has to be punished has been lifted but will be in force until 2019.
Freelance work, in and of itself, does not provide access to health insurance. The path for self-employed people currently receiving medical care is either to partner or marry someone whose plan they want to take on or to buy through a public health exchange.
As a freelancer, you can also look at various roof group policies. Does your College Alumni Association have an accession plan? What about the Freelancers Union?
Remember that freelancers also need to retire.
Many freelancers created jobs for themselves when they could not find a job for a company. For them, freelancing is a way to pay the bills and open new doors. In other words, not every freelancer is a starving artist; more than a few are freelancers as a stop-gap measure.
But these people, too, have to think about retirement before they retire. Think about opening an IRA. Like a 401 (k), an IRA offers tax-based growth on your investments, which means that the money in an IRA is not taxed until it is withdrawn. A traditional IRA may also provide tax-deductible contributions to people who do not participate in an employer-sponsored plan.
According to a Harvard study, the proportion of people involved in “alternative jobs” (freelancers, contractors, on-call and contract workers) rose from 10.1 percent in 2005 to 15.8 percent in 2015. Economists Alan Krueger and Lawrence Katz, 94% of the net jobs created between 2005 and 2015, were such volatile jobs.
Retirement pensions make little sense to most people and even less to the people in this increasingly probable income group.