Being a freelancer or gig worker can be rewarding, but it can be easy to make poor financial decisions. These tips will set you up for success.
According to a study conducted by Upwork and Freelancers Union, 57 million Americans freelanced in 2019. It's likely that this number will only continue to grow in the coming years. Whether you're freelancing on a full-time basis or working a gig as a side hustle, it's essential to keep your finances in order. That's because this kind of lifestyle has different financial implications. Keep reading to check out some personal finance tips for freelancers and gig workers.
1. Outline a budget
The first thing you'll want to do is outline a monthly budget. You need to know how much money you need to make to cover all of your expenses, bills, and savings needs. This will help you set your freelance income goals. If you need help budgeting, we have some excellent budgeting tips.
2. Set aside money for taxes
If you're a freelancer or gig worker, you're probably classified as an independent contractor. This kind of work is different from a W-2 paycheck job. Instead of having your taxes taken out of your paycheck, you'll need to set aside a portion of your income for your taxes yourself. Make sure you do this on a weekly or monthly basis to avoid added financial stress.
3. Pay your taxes quarterly
As a freelancer or independent contractor, you should pay your taxes every quarter. You'll pay estimated taxes throughout the year since the taxes aren't coming out of your paycheck each month. Make sure you pay all local, state, and federal taxes quarterly to avoid penalties in April. Plus, you'll feel better knowing that you don't have a huge annual tax bill.
4. Hire for tax preparation
If you're new to gig work or freelancing, you may be confused about your tax situation. That's understandable, but you don't want to guess your way through filing your taxes because you may make costly mistakes. Instead, hire a professional to help out. You'll be less stressed, and you'll feel more confident knowing you filed your taxes correctly.
5. Don't ignore retirement savings
Just because you don't have a W-2 job with retirement benefits doesn't mean that you should ignore saving for your retirement years. If you're freelancing and have no job benefits, you need to think about the future. Treat your retirement savings as a monthly bill when budgeting and set up automatic contributions. There are several retirement account options to consider, including a Roth IRA, IRA, SEP IRA, or Solo 401(k).
6. Set aside an emergency fund
When you freelance or work in the gig economy, your income can fluctuate throughout the year. There may be times when you're not making much money, and an expensive, unexpected bill comes up. Having an emergency fund is critical. When times are good and you're busy with plenty of work, don't be afraid to save a little extra. You'll never regret having an emergency fund.
7. Keep track of business income and expenses
Most freelancers have varying incomes each month. It can be hard to keep track of how much money you make if you're not organized. Track all of your income so you're better able to measure your tax responsibility. It's also helpful to document all of your business expenses throughout the year because come tax time, you may qualify for business deductions. Plus, keeping your income and expenses organized now will save you a lot of stress during tax season.
Being a freelancer or gig worker can have many benefits. As you navigate this unique work situation, be sure to make smart financial decisions. These tips can help you manage your day-to-day work and financial life and better prepare for the future.
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