When you start out as a freelancer, long-term financial health isn’t usually top of mind. You’re too busy trying to land gigs to cover next month’s bills. Freelancers are often so focused on surviving from month to month, that they overlook long-term financial security. If you want to escape the financial anxiety of survival mode, then you need a plan.
1. Set a Financial Goal
Setting a financial goal is the first step toward financial security. If you don’t have a clear financial roadmap, how will you know what you want to achieve? Your financial future involves more than just one goal. Take stock of your current situation and list specific goals, such as:
- Saving 10% of your income. Many financial experts preach about paying yourself first before paying anything else. Aim to save 10-20% of your income every month. If your freelance income is currently meager, you may feel that you can’t afford to save. Do so anyway, even if it’s just $20 a month. You’ll establish the habit and can increase it as your income grows.
- Creating an emergency fund. If your car breaks down, your HVAC system needs repairs or a plumbing emergency strikes, will you be able to fix it? An emergency fund will see you through an unexpected crisis.
2. Reduce Expenses
Take a ruthless approach to your expenses such as utility bills, retail spending, entertainment, and insurance (medical, home, and car). Where can you cut down? Can you buy less takeout, implement ways to save on utilities, and curb unnecessary shopping? Ask your insurer about bundled home and car insurance. Many insurance companies provide a discount on a bundled policy.
A little forethought can also save money in the future. For example, does your car insurance include accident forgiveness? According to The Zebra, car insurance can increase by $617 in the first year after a claim and up to $1,861 by year three. Accident forgiveness can avoid a nasty jump in premiums should you claim for an accident.
3. Lower Your Debt
If you’ve reduced your expenses, you can put the extra money saved towards debt. If you don’t have much debt, then funnel it into your savings.
Debt is stressful, especially if you’re a new freelancer and your income is sporadic. Once you skip paying a bill, it becomes harder to catch up. Put a plan in place, like the debt snowball method, to pay off credit cards, personal loans, auto loans, and student loans.
Be diligent about paying your minimum balances so you don’t fall behind. Use some of your disposable income to make bigger payments whenever possible. If you pay off one debt, use the freed-up money to pay off another debt faster.
4. Take Out Disability Insurance
As a freelancer, you’re a solopreneur. Should you be unable to work for a long period, there’s no one else who can keep the business going. How will you cover your monthly expenses?
Disability insurance can cover a loss of income if you suffer a long-term illness or disability that prevents you from working. You can choose cover for a specific period like 12 months or up to retirement age. You can also choose how much of your monthly income you want replaced during the time you are laid up — 50%, 75% or 100%.
If you don’t want to take out an insurance policy, you can cater for this in your emergency fund. Calculate your monthly expenses and save enough to cover your expenses for at least 3 to 6 months or longer if you can. Planning for life’s unexpected curveballs gives you peace of mind.
5. Hire a Financial Planner
If you want to take financial security to the next level and create wealth, then consult with a financial planner. A financial planner can advise on the best investment funds. There are a lot of options out there from bonds to stocks and even Bitcoin. There are also a lot of shady schemes you can unwittingly fall into. That’s why it’s best to seek guidance from an expert. Creating wealth is a long-term process that requires time and patience.
6. Retirement Planning
Unless you intend to work forever, you should plan for retirement. When you worked for an employer, money was deducted from your salary to go into a retirement fund. Why should it be any different now that you’re working for yourself? Consider this part of your standard monthly deductions just like it was when you were a salaried employee. It’s a crucial part of your financial security in the future.
Freelancing doesn’t have to mean riding the feast or famine rollercoaster. Financial security is possible but will involve some time, sacrifices, and dedication. It requires a broad strategy that covers both short-term needs and long-term goals. It won’t happen overnight but taking one small step today puts you on the path to a better financial tomorrow.