April 12, 2022
Self-employment is more popular than ever due to the surge of freelance and gig-based work. Ridesharing, e-commerce shop owners, remote workers, and digital nomads add to the diverse variety of self-employed, freelance, or independent contracting workforce. Unlike traditional employer-employee jobs, self-employed people are required to manage and pay all of their taxes throughout the year instead of an employer taking care of the payments and partial contributions. They’ll also need to supply their own retirement savings and plans.
It’s always tough to eliminate expenses, especially if you feel like your budget is already tight. However, the more expenses you cut down, the more you’ll have to save for emergencies, housing, and retirement. If there’s a streaming service you use once every six months, consider cutting it. If you go out to eat often, go out less. You don’t have to eliminate all of the joy and fun in your life, but be smart about how much you spend unnecessarily.
A budget helps you track your money by writing down your income and your expenses and comparing the two. Typically, a budget is created when you add up all of your income sources and costs per month. Subtract your expenses from your income to see how much money is left. If there’s none left, you may want to cut down on more expenses. If there’s a negative amount, it means you spend more than you earn, and you’ll need to either secure additional income or reduce more expenses. If there’s a positive amount, that means you earn more than you spend, and you can use that amount for savings and leisure. It’s recommended to save at least 20% of your income, but for self-employed individuals, you may want to save more, especially for retirement, as you won’t have an employer to match your contributions.
You can still have a retirement plan without an employer! You’ll typically just be contributing yourself instead of alongside your employer. However, these plans are still excellent for retirement. Traditional or Roth IRAs (individual retirement accounts) offer tax breaks and pre-tax incentives to keep your tax bill lower and your contributions higher, depending on the type you choose. You can also select a solo 401(k) if you don’t have any employees. There are some other options for small businesses with a few employees, like a SEP or SIMPLE IRA. Go over each option and consider consulting with a financial advisor for advice tailored to your career and finances.
Groceries cost more now than they did five, ten, and fifteen years ago. When you retire, groceries will cost even more. Inflation refers to the change in the price of goods over time. When saving for retirement, make sure you consider the rise in costs in your savings plans.
You’ll have more financial security if you have multiple streams of income. If you can, add more income sources for better job security, financial freedom, and increased savings. You can utilise active income, such as a side gig or a freelance job, or you can take advantage of passive income. Savings account interest, rental property income, and investment dividends all count as passive income.
While you may be investing in a retirement plan already, consider other types of investment to generate additional passive income. Investing can also bring you closer to financial freedom. Bonds, the stock market, and real estate trusts are examples of investments. It takes time and effort to build wealth through investing, but you can see a lot of rewards.
It’s pretty difficult to save for retirement when you’re uncertain just how much to save. What expenses should you expect during retirement? Are there any additional expenses to consider? Just like right now, retirement requires certain regular expenses to live. Food, groceries, utilities, rent, and healthcare are all expenses to expect during retirement. Your housing situation will be something to factor in. If you purchase a home, you may not have to worry about mortgage payments by the time you retire. If you plan on renting your whole life or buying a home later in life, you’ll need to factor in a mortgage or rent in your monthly expenses. If you need assistance with daily living or healthcare, you may need to reside in an assisted living facility or nursing home community during some of your retirement. These community costs will vary depending on the type and location but typically cost anywhere from $2,000-$5,000 monthly! Healthcare costs will likely rise during retirement; while you’ll have access to health insurance like Medicare, it won’t cover every medication or doctor.
Retirement advice involves calculating a lot of typical costs or average expenses. However, life isn’t always so clean-cut, especially when you get older. Expect to spend more than the average during retirement to keep your savings optimal. Expect emergency medical treatments or expensive prescription drugs. If you are scammed, mistreated, or harmed during retirement, you may need to spend fees on attorneys to pursue litigation, especially when signing an arbitration agreement in a nursing home or retirement community. The more you save for emergencies, the better off you’ll be.
There is no such thing as ‘too early’ when it comes to retirement savings. The earlier you start, the more comfortable you’ll be during retirement. It may be tempting to put retirement savings off if it seems very far away. Time moves quickly, and it can sneak up on you. When is the best time to start saving? Right now (but likely yesterday).
It can be hard to save when you have high healthcare costs. Find the best health insurance possible. You can save a lot of money as a self-employed individual through the government healthcare marketplace. Consider a health savings account (HSA) as well; contributions aren’t taxed, and you can withdraw money from it for any purpose once you retire, which can come in handy!
