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Financial planning is important for anyone, but freelancers have specific challenges when it comes to saving for retirement and managing cash flow. In our most recent Team Up Research, freelancers rated “inconsistent income” as the most significant challenge. The good news is that this same survey found that making more money was one of the top reasons people freelanced.
So, how do you manage income fluctuations and still manage to save for the future? We sat down with Peter Bourg, a certified financial advisor with Ashford Advisors, to find out.
Peter talked about four areas of focus that freelancers should be thinking about when it comes to financial planning.
One of the most important things you can do as a freelancer is to create a cash flow system to manage your income and expenses in a way that helps you achieve your financial goals.
Peter suggests putting all your income into one “holding tank” account. From there, you send money to two different sides of your financial life:
Peter’s biggest advice here? Automate it! “We all have busy lives, so it’s important to make it systematic and automated, where you don’t have to think about it.”
If you’ve ever worked for a company that offers a 401k program, you know that you select a certain amount of your income to be taken out of your paycheck every month so you’re able to save without really having to think about it.
If you’re a freelancer with a 1099 income, you must look at other retirement savings options. Firstly, you’ll be eligible for Social Security just like a W2 employee, but your contribution will be taken out when you file your taxes. For most people, that alone will not be enough.
As an alternative to a 401k, freelancers have three options:
For these three options, it’s important to talk to your CPA regarding the tax implications. There may also be limitations based on your spouse’s retirement plan. You can find more detailed information at irs.gov.
Peter also cautions, “You want to make sure that you’re balanced in where you’re saving because you don’t want to save too much in one bucket and not have access to money for other opportunities in your life.”
In addition to a retirement account, there are other ways to build wealth for the short, medium, and longer term. These include:
The final area of financial planning that Peter suggests freelancers consider is insurance. These are ways to help protect yourself, your paycheck, and your business. In fact, there are so many ways to do this, that we’re going to do another article just about insurance.
Here’s a brief overview of the types of insurance a freelancer should consider:
Freelancers have unique financial considerations—and the financial world can be overwhelming and full of advice (not all of it correct). Putting good systems in place, taking a holistic view of your financial health, and finding a trusted financial advisor who can provide solid advice as life circumstances change are all ways to help set you up for success.
Peter Bourg is a Registered Representative and Financial Advisor of Park Avenue Securities, LLC (PAS). Securities products/services and advisory services are offered through PAS, member FINRA, SIPC. Financial Representative, The Guardian Life Insurance Company of America® (Guardian), New York, NY. Park Avenue Securities is a wholly owned subsidiary of Guardian. Ashford Advisors is not an independent registered investment advisor nor an affiliate or subsidiary of PAS or Guardian. Ashford Advisors is not registered in any state or with the U.S. Securities and Exchange Commission as a Registered Investment Advisor. CA License #0I07706; AR Insurance License #10381689. No compensation has been provided by the adviser in connection with this interview.