7 ways a freelance writer can create retirement income
Being a freelancer certainly has its perks but is early retirement an option?
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Are you interested in successfully sailing the freelancing waters and being smart about your finances at the same time? To do that, you need to be aware of some of the most important factors of personal finance management if you want to take up the responsibility of becoming a freelancer. How can you prepare for a crisis of low business and savings if you want to retire early as a freelancer?
While you might argue that gig work is reminiscent of 18th-century merchants and tradespeople, freelancing is a relatively new trend in the modern business world, but predictions say that the U.S. workforce will soon have more freelancers than on-site, regular workers. Companies certainly reap their own benefits from hiring a remote, non-employee workforce, but is there something in it for freelancers other than just profit? Is it a chance to earn your way to early retirement?
Due to the specific way of working, living and functioning in a freelance business, it’s crucial to plan your financial situation in advance. A lot of freelancers don’t do this and simply enjoy the high-profit wave, go through lifestyle creep, and later pay for their mistakes.
To prevent these kinds of financial issues, we’re bringing you some of the most important tips on successfully managing your finances as a freelancer and planning for early retirement:
Create A Low-Business Fund Next to Your Retirement Fund
Creating a black fund (for periods when you’re having trouble landing new clients) is one of the smartest moves you can make as a freelancer. A lot of freelance workers who plan for their retirement do it wisely and meticulously, but fail to prepare for those grim days where you just can’t seem to land a project.
In non-freelance terms, regular workers usually call this an emergency fund which serves to take care of your expenses in the case you get fired or decide to quit your job. Experts recommend that this fund should cover at least 6 months of expenses. This should give you more than enough time to find a project that you’re happy with and enough leverage to not have to accept low-paid projects out of desperation.
View Your Freelance Revenue as Revenue, not Profit
During the negotiation stage, many freelancers tend to think of the money they’ll receive from the project as pure profit. Unfortunately, this is rarely true.
First of all, if you’re doing business through an intermediary freelancing service like Freelancer, Fiverr, or Upwork, you have to account for their fees as well (for more accurate expense estimates, you should also factor in your subscription price on these sites).
Secondly, if your freelance business is a legal entity or you operate as a self-employed person, a hefty portion of your revenue will go to the national budget (aka the IRS in the form of taxes). However, it’s always more wise to do business in a way that’s law-compliant and allows you to enjoy fruits of your labor care-free.
Always keep in mind that the number you receive from your client is usually not the amount you will receive as profit.
Separate Your Personal, Business and Savings Accounts
Unless you enjoy headaches, keeping your personal and business expenses separate as a contractor is crucial. And in the same sense, if you always want to have a clear overview of how much you’re spending in your business or in your everyday life and how much you’re saving for retirement, it’s smart to create separate accounts that will always show you exactly how much you’re working with.
“Running a freelance business, taking care of your private expenses and saving for retirement all at the same time can be extremely chaotic. The easiest way to simplify it all is to separate these chunks of funds into different accounts and never touch them for purposes they’re not intended for”, advises Diana Adjadj, a writer at Studyker and WriteScout.
Your business account can serve for everything that’s needed to run your freelance business, while your private checking account can be used to pay out everything that’s left after the business expenses.
This way, you will never be unaware about the amount of money that’s available for real expenses, which will reduce your rates of irrational and impulse spending and set you up for success in saving. Which brings us to…
Saving, saving, saving!
If you decide to work as a freelancer on your way to early retirement, you have to come to peace with the fact that you will be your own boss. This means that the level of rationality that you approach your finances with will be the exact level of benefits you will receive.
As I’ve already mentioned, it’s unavoidable that one month, it will be raining clients, while another will seem like an apocalypse – it’s the freelance Circle of Life or the abundance-dry spell cycle.
Make no mistake, even if your skill is in super high demand, you will have droughts, and that’s perfectly normal. The key is to prepare for them – both organizationally and financially.
Taking the time and money to invest can be a great way to build your retirement income. Since freelancing is time consuming, we recommend focusing on investing strategies that provide passive income. One example is getting into index funds which is almost entirely passive. Although it sounds simple, index investing is something that takes careful planning and patience up front. Once you’ve set up the accounts and made your investing decisions, there isn’t much for you to do. Real estate investing is another way to create some semi or completely passive income.
Diversify Your Client List
Starting a freelance career that can sustain you to retirement is definitely not an easy feat. Many contractors are ecstatic to finally land a regular big client for a long-term agreement (over 6 months).
This is great and will allow you to plan your finances with more predictability, but tread lightly when it comes to putting all your eggs in one basket.
To avoid this, try to work with as many clients at the same time (at least two or three) in case one of them backs out, or simply ends the project. If you want to actually have a retirement income from your freelancing, you will have to maintain your rolodex of clients at all times.Relying on just one client can severely undermine your efforts. If you’re having trouble signing new clients, you should look into ways to get more contract work.
Reduce Your Spending – Both Business and Personal
When it comes to saving for early retirement, cutting back on expenses is even more important than earning a lot of money. If you maintain a lifestyle where you can function on a lower amount of funds, you’ll create a habit that will follow you into your retirement and help build a life that’s modest, happy and free of financial worry.
Many aspiring freelance early retirees try to cut back on their personal spending as much as possible, which is good, but have you already considered your business cost? For example, are you renting out space that you could do without? Do you use software that has cheaper alternatives? Just like in personal finances, you can save a lot by being frugal.
Organizing your finances and planning for early retirement as a freelancer can be exciting, but also quite daunting. A lack of control over your personal finances can cause you many problems, especially when it comes to long-term plans.
Learn strategic and disciplined finance management, use some of the advice that we’ve explained above and don’t let finances stop you from retiring early and enjoying your life to the maximum.
Marques Coleman is a blog writer at TopEssayWriting and specializes in marketing and copywriting. Moreover, he is an avid traveler and always tries to learn something new.