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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