In the U.S., the number of gig workers increased by 34% from 2020 to 2021. If you’re one of those new gig workers, it’s time to make sure your finances are in order! Whether gigs are your main source of income or part of a side hustle, be sure that you understand your income and expenses a year in advance, separate your business and personal finances, prepare for taxes, have an emergency fund and save for retirement. These tips will help you stretch your dollars and give you peace of mind.
1. Understand your income and expenses a year out
Without a twice-monthly paycheck from an employer, a freelancer’s income typically isn’t 100% reliable. Plus, with taxes not being withdrawn automatically, there’s that to plan for, too! One way to combat the uncertainty and responsibilities of the freelance life, be sure to plan way ahead.
“In order to determine the right monthly salary for yourself, create a budget for the entire year,” said Rasha Al-Sharqawi at http://flan.design. “A budget is not only useful to help set up your rates, it can also be used to prioritize and stretch out your expenses throughout the year to minimize their impact on your budget.”
2. Separate your business and personal money
“It’s not always easy to keep your personal finances separate from your side hustle or small business,” said Kevin Mercadante at http://moneyunder30.com. “But separate you must, otherwise you’ll have no way of knowing if your business is profitable. There’s also the potential to make mistakes.”
Here are the tips Mercadante gives for keeping your personal and business finances separate:
- Apply for an employer ID number (EIN)
- Set up a corporation or an LLC
- Set up a business bank account
- Set up a dedicated space for your business
- Set up separate file storage for your business
- Get a business credit card
3. Prepare for taxes
Tax season 2022 may be nearing its end, but for the freelancer, tax season 2023 is just beginning!
“The self-employed are responsible for staying on top of their tax obligations and figuring out what they owe and when they need to pay it on their own,” said Paula Fernandes at Business News Daily. “For freelancers and independent contractors, tax time isn’t once a year — it’s always on the horizon.”
You might consider hiring a tax professional to help you, at least for the first year or so, while you figure out your business structure and how to prepare each time.
4. Have an emergency fund
Financial experts often suggest having at least three months’ worth of salary in the bank to use in case of an emergency. If you were to lose your income, that amount gives you a nice buffer to find work and still be able to pay your bills.
“Think of it as an insurance policy. Rather than paying premiums to a company, you’re paying yourself money that you can use at a later date,” said Janet Fowler at Investopedia. “The cash can be accessed quickly and easily if some unfortunate event happens to occur.”
5. Save for retirement
Everyone needs to plan for retirement, but if you are self-employed, you need to plan better than most. Ana Lucia Murillo at http://money.com offers three tips freelancers can follow to save for retirement:
- Before you start saving for retirement, get your finances in order as best you can.
- Find good health insurance and disability insurance.
- Choose a retirement plan. There are traditional IRAs, Roth IRAs, SEP-IRAs (Simplified Employee Pensions), or solo-401(k)s to choose from.
You might also consider hiring an investment advisor, like Merrill Financial Associates in Provo, to help you make the best decisions for your future.
To sum up, here are the financial moves you should make if you are a freelancer: Understand your income and expenses a year in advance, separate your business and personal finances, prepare for taxes, have an emergency fund and save for retirement. Taking these steps will make your financial situation smoother and help you sleep better at night.