Essential Savings Tips for the Self-Employed
For those freelancers, contractors and entrepreneurs, traditional financial advice doesn’t always apply. With fluctuating incomes and sometimes unpredictable workflow, they’re placed in a unique position when it comes to saving for their future — especially when it’s tax season.
If you’re self-employed, check out these 6 savings tips to keep you on track.
1. Think in percentages. When you’re creating a budget, use percentages of your income rather than dollar amounts. This allows you to sacrifice the same proportion of your income, no matter what next month may bring. Simply put: You can give more when you have more, and give less when you have less.
2. Save for taxes first. After a successful year, the last thing you want is to find out you owe thousands in taxes. Create a savings account devoted entirely to the taxes you’ll pay in the upcoming year. Each month, make sure you set enough aside for the worst-case tax scenario. (You can make additional money on what you’re setting aside by placing it in an interest-bearing savings account or short-term CD.)
3. Know the basics. While your income may fluctuate, the amount of money you need to survive typically does not. Calculate the bare amount you need to make ends meet for a month, including rent, utilities, food, transportation, insurance, etc. Treat this as the baseline for your budget.
4. Save more when you make more. Create an overhead account or reserve fund. On the months you do well, set aside some of that extra income into that account. During the slower months, you’ll have a fund to pull from to keep your salary consistent. Once you have at least six months of savings in that account, use the extra money to tackle other financial goals (retirement, mortgages, debt, etc.).
5. Always track your deductions. From mileage to office supplies and even the lease on your office space, there’s a ton of tax deductions created specifically for the self-employed. Research which of your expenses qualify as deductions and maintain detailed records of those expenses with receipts.
6. Be proactive about retirement planning. Check out all of your options — from a Roth IRA to 401(k) — and find a plan that fits. A huge benefit of self-employment is the freedom to save in a way that works best for you and your lifestyle.
With the right preparation and plan, self-employed professionals can always stay on track with their long-term goals. They can take advantage of the freedom they have to build a financial future on their own terms.
Want to talk through your unique situation? We’re here to help. The Helmstar team can even help connect you with a team of professionals to make sure you are getting a 360-degree view of your financial, insurance, and tax situation.