The Freelancer’s Guide to Financial Security | Local News

Independent professionals have unique opportunities and challenges when it comes to creating a viable path to financial security. In exchange for increased flexibility, freelancers must create their own paychecks and financial strategy. Whether you’re a lifelong freelancer, new to the “gig economy,” or just curious about how people can manage their money when they don’t have access to traditional workplace perks, here’s a introduction on how to make it work:

Set your own terms of service. Define your rates and payment terms to avoid any ambiguity with your customers. It’s easier to enforce terms when you’ve laid them out in your freelance contract and on your invoice. An established policy can also help you establish and meet your income goals and maintain sufficient cash flow.

Keep work and personal finances separate. Mixing business and personal expenses can cause problems later. When tax time approaches, it is helpful to isolate your business expenses, with supporting receipts. Be sure to keep complete business records going back at least three years in case of an IRS audit. Also, consider paying yourself regularly from your business account. You can choose a fixed amount each month or a percentage of each project. This will help you manage your personal expenses.

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Maintain a healthy emergency fund. Freelancer earnings often fluctuate in direct response to a variety of factors, including the economy, seasonality, changes in the needs of a key client, or your ability to complete projects. Build up your liquid savings, which will allow you to subsidize your salary for a lean month.

Create a tax strategy. Freelancers are generally required to pay estimated taxes on a quarterly basis, with the remaining balance due at tax time the following year. Self-employment taxes, which cover Social Security and Medicare, must also generally be paid quarterly. Paying the incorrect amount can lead to costly penalties. Consult a tax advisor who can help you formulate your strategy.

Prioritize saving for retirement. You won’t have the benefit of a corporate match, but you still have options for saving for retirement, including a variety of IRAs and the individual 401(k). The key is to establish a habit, even if that means saving a modest amount each month. Aim for 10-15% as a goal, save more if you can. Be aware of the rules regarding self-employed pension plans, which can get complicated if you hire one or more employees.

Don’t forget to regularly review your financial situation. Watch your cash flow carefully and be sure to bill your customers in a timely manner to get paid as quickly as possible. It can be cumbersome to keep track of all your expenses, but it’s possible to know where your money is going. When you understand your income and expenses, you’re in a better position to steer your business in the most profitable direction.

Don’t neglect health care. Health problems can arise at any time. Minimize the impact of a medical crisis and protect your financial stability by enrolling you and your family in a good health insurance plan. You can evaluate options from the health market or from an insurer during the annual open enrollment period.

Don’t wait to create a plan for other long-term financial goals. Weddings, the birth of a child, college savings and a new home are just a few of the important life events that can be difficult to plan for when your income fluctuates. It helps to have a clear plan to achieve multiple goals

If you’re a freelancer, it can be easy to let the unpredictability of your income prevent you from achieving financial confidence. Whatever your personal or professional financial situation today, you can take control and improve your situation for tomorrow.

Nic Gilliam is a financial advisor at Cordian Wealth™, a private wealth advisory firm of Ameriprise Financial Services, LLC in Statesville. He specializes in fee-based financial planning and asset management strategies. To contact him, you can call 704-872-8181. It is located at 642 Signal Hill Drive Ext., Statesville, NC 28625.

Sarah J. Greer