Congratulations! You’re a full-fledged, income-earning freelance writer. You pay your bills, feed yourself and even had some lovely business cards printed for your wallet.
Think you have it all figured out? You’re wrong…
Making ends meet from month to month is just a short-term plan – so what happens after you hit retirement age?
Ask yourself one question: “Do I want to work for the rest of my life?”
If the answer is “no,” KEEP READING!
Saving and investing is the single most important thing you need to do to prevent you from dying at your desk in old age. It’s also the only way you’ll be able to buy a home or send kids to college or university. Face it, you’re NOT going to win the lottery. Start putting money away now!
Speak to a financial advisor
This is the most crucial step towards your comfortable retirement! Find advisors at your bank, through colleagues, family or friends, or even just through an online search. Just make sure he or she has a solid reputation before you commit to a financial relationship.
If you’ve held “regular” jobs before then you’ve probably already paid some money into a government-led retirement plan, such as a Canada Pension Plan, 401(K) or the State Pension (UK.) For many of us freelancers, however, that amount is either $0 or negligible at best – which is why we need to start our own pension funds and speak to someone who can combine any previous savings with a good pension plan.
- In the United States you can speak to a financial advisor about opening a Solo 401(K), an Individual Retirement Account, or a Simplified Employee Pension.
- In Canada, you should set up a Registered Retirement Savings Plan (RRSP.)
- If you are a British citizen, you can pay into the same State Pension that you would have if you had an employer – additionally, you can choose to open a personal pension, a stakeholder pension, or a self-investment personal pension. Talk with your advisor to decide which is best for you.
Budget for EVERYTHING
Does this seem like an obvious statement? You’d be surprised – or maybe not.
If you’re like most freelancers, you find budgeting difficult because of a fluctuating income.
So start with the basics. Add up your essential expenses: rent, utilities, food, cat food, insurance, gas, etc.
See what you have left over from this amount at the end of your average month, and split this into savings and pension payments. Most financial advisors suggest putting away at least 10% of your income each month to prepare you for emergencies as well as your future retirement.
Open a savings account
Or to be more specific, open a high-yield savings account. These are specially-developed not just to hold your savings funds, but to turn your original payments into more money over the long-term. Check out government programs, particularly for tax-free savings accounts.
Here’s the thing – saving money doesn’t mean keeping a spare $20 or $100 in your account after you’ve paid all your monthly expenses. When you put your monthly savings into a high-yield account, you should do so with the intention that you won’t withdraw the money unless it is absolutely necessary. This way, you can sit back and watch it grow!
Make smart investments
While your pension plan marinates in the hands of your trusted financial advisor or banking representative, start thinking of ways to grow your own personal savings.
Wait until you have a comfortable amount of money saved, let’s say a few thousand dollars/pounds, then look to options that allow you to grow a few spare hundred dollars into something larger.
Here are some popular ways to invest a few hundred or a few thousand dollars:
- Savings bonds
- Peer-to-peer lending
Micro-loans are small amounts of money that you can invest into small businesses. You can find profiles of entrepreneurs looking for investments online at websites like LendingClub or Prosper. Your investment will earn you monthly repayments on the initial investment, plus interest that you have agreed upon beforehand.
Savings bonds are a traditionally safe and trusted way to invest, since they are issued by the government. In the US you should consider purchasing a Series EE or Series I Savings Bond, which will increase your investment over a period of one to five years. These bonds are available for as little as $25 and as much as $10,000. You can also purchase a Canada Savings Bond, but only if you are eligible to register for the Payroll Savings Program (not ideal, sorry.) In the UK, look into Fixed Rate Savings Bonds available from the Post Office.
Peer-to-peer lending is very similar to investing in micro-loans, except that the money is often used for reasons other than growing a small business. Repayments are organized monthly, according to agreed-upon interest rates.
Grow your funds even more
So here’s what you’ve (theoretically) done so far:
- You’ve consulted with a financial planner and budgeted a monthly amount to contribute into a personal pension plan.
- You’ve also budgeted a monthly amount to contribute to your high-yield or tax-free savings account.
- And you’ve used the extra funds to start investing a few hundred or few thousand dollars.
Now? It’s time to roll those earnings over and start investing in bigger ways.
A good place to start is at $10,000 – with regular payments into your savings and pension plan, of course! This amount of money can really start to make some difference in your retirement fund, and many people choose to invest their first $10,000 into a Certificate of Deposit – or a CD.
You can find CD options through your financial advisor, or through a bank representative. The bank’s insurance covers the amount so that you can trust your investment over the minimum 1-year term.
Every time you receive investment earnings, add them to your pension fund! The bigger it is earlier on, the sooner you can retire.
If you haven’t put anything away yet, don’t panic. Get in touch with an advisor and follow through by establishing your pension and savings funds. Start saving this month – don’t wait until it feels comfortable to do so, because you may never reach that point.
Start now, invest wisely and take care with your budgeting and expenditures – and you’ll be able to retire in relative luxury!
Justin Bilyj says
Make smart investments, and then you had P2P lending on, micro loans etc. all in there…which as of late has taken a bath. Maybe the financial advice should be left to the professionals. This article is very dangerous to freelancers, and borders in the United States to giving financial advice without holding a license…..microloans that is absolutely insane!
Remember that the first piece of advice is to contact a respected – licensed – financial advisor. The purpose of this article is to let freelancers know how important it is not to put off planning for retirement, and to show them there are a variety of options out there when it comes time to expand one’s savings.
Jeffrey Hill says
These are good tips. Its one of those things that can easily get overlooked as a freelancer (or in any profession, for that matter). And sometimes, financial planning is just flat out boring. Or intimidating. Or both. Haha. Its good to have this kind of reminder, whether you have some of it set up or don’t have anything saved at all.
I liked the “cat food” bit in the expenses. From experience I can say that stuff adds up!
Nemisha Sharma says
Thanks for all these amazing tips, Mandy! Financial planning scares most, if not all, freelancers. It even scares me! I’m 26 now so I’m just trying to save. I guess once you hit your 30s you have enough to start a pension plan.
Oh, and I absolutely loved the cat food bit! I have two cats and the expenses really add up. Thanks.
Thanks Nemisha! I’m glad the kitty remark was appreciated- I have three and they are a top priority! 😀
Elvis Michael says
It’s incredibly easy to neglect your savings account (trust me, I used to never put anything into my savings, and then i changed my ways).
A problem that I see with some people is the notion of “everything or nothing.” Meaning, unless they can put in large amounts into their savings at a time, they rather not even bother.
I first started by saving a measly $10 per month, knowing it would turn into a nice $120 in a year without even breaking a sweat. Anything helps and it quickly adds up over the years!
Thanks for the post, Mandy 🙂
Eleni Dillow says
Hey ideas ! I Appreciate the info – Does anyone know where my business could possibly obtain a template a form form to fill in ?
Roland Breslin says
My work colleague acquired a sample a form version at this site