Words like budgeting and savings make our eyes glaze over, especially when we’re young or still figuring stuff out. These ideas and to-dos feel complicated and often drift (pretty quickly) to the bottom of our to-do lists.
Savings as a Buffer
You never want to be stuck in a position where you don’t have enough money to cover the little things. Even if you budget for the big expenses, the small ones add up and if you don’t pay attention, they can eat at your income very discreetly. Also, there are often unexpected expenses that can cause some real panic if not on your radar. You want to be ready for it all.
Savings to Invest in Growth
Growth requires making some big investments in your business. You’ll want to put your money towards things that can make you more of it. This takes on a few different shapes such as putting money and energy into marketing and promotional materials, more sophisticated equipment, more luxurious materials, more advanced software or any other number of things that could take your business to that next level. This also involves determining at what level of production you’re breaking even on the equipment purchase, and only making the purchases when you reach that production level, saving up until then.
You wouldn’t want to buy that new sewing machine after only filling three orders, you’d want to wait until you have that sort of proof of concept and established market before upgrading in anticipation of the increase in demand that comes along with the upgraded equipment.
It’s important to save for retirement just like anyone else, maybe even more than others. Without an established company offering different retirement plans, you have to be on top of those for yourself. Within the freelance space, there are pros and cons to each option. The Roth IRA is good for people who are either just starting out as freelancers or do freelance work between jobs, according to Amelia Josephson, a writer for the Smart Asset website. She suggests a Separate Employee Pension IRA for freelancers who are bringing in a lot of money at the current moment, because the contribution limits are higher.
Lastly, she lists the Solo 401K option, a more complicated option due to increased paperwork. The essential idea is you are contributing to your 401k as both an employer and an employee, giving you two separate contribution limits. Josephson notes, very importantly, that there are many more options outside of these, including taxable accounts.
One option often not considered by those not employed by corporations is investing in passive income, whether the stock market, real estate, cryptocurrency and the list goes on. While this option can be sort of daunting, there are so many resources available for those looking to learn. As a college student who does some freelance work on the side, stocks are a good option for me because I can passively bring in that income, and I don’t need to worry about it. Long term investing, especially for retirement, can be pretty lucrative and quite stable, specifically when reinvesting dividends. Resources I find helpful are youtube videos, access to financial advisors as clients of financial companies such as fidelity or banks, stock forecasts easily found for most specific stocks as well as mutual funds, ETFs, and indexes when searched for on search engines.