Savings Hacks for Freelancers
February 28, 2019
Saving can be hard enough, and for those with variable income, the challenge may seem even trickier. When you’re not sure when or how much you will get paid, it can be difficult to plan and budget. The two main ways to save more are are to spend less or make more. Bonus points if you can do both simultaneously. Being a better saver is a lifestyle and will require adjusting some habits and shifting your thinking around saving and spending.
Why are you saving?
There are many tips and tricks on saving money. You can forego eating out, go dumpster diving, give up your gym membership, always make your own coffee, etc. But before we jump into how to save, you’ll want to figure out what you’re saving for. Is it for a trip to Thailand? Saving for retirement? A little bit of both long-term and short-term? Or do you just want to spend less to feel less wasteful? Whatever your goal is, write it down on a piece of paper or a notebook. Review your goal every six months to a year to see where you’re at and how you’re doing. Having a goal in mind will help you stay on track when you come across possible impulse buys.
Ways to earn more
Making the most out of your freelance career
The beauty of being a freelancer is naming your price. If you’re new to self-employment, you may have a hard time figuring out what to charge or are afraid of overcharging clients and end up lowballing yourself. You can earn more money freelancing by raising your rates, refreshing your portfolio, or upping your marketing game. Be ready with techniques and strategies to help back you up if you run into an uncomfortable scenario such as dealing with late-paying clients. If you need help getting more work, freelance job boards may be a great resource.
Earning from spending
If you haven’t already, find a credit card that offers reward points and travel miles to earn from your spending. You may want a business credit card to separate from your personal expenses. Only open a card with a spending requirement if you were going to spend that amount of money anyway. Opening a card that requires spending $4,000 in the first 3 months to get points won’t be worth it if you don’t need to spend that amount in 3 months. But if you were going to spend that much in that amount of time anyway, it may not be a bad idea. Practicing self-discipline and common sense will help you in your savings journey. If an offer seems too good to be true, it probably is. Make sure to understand all the terms (e.g., annual fee) too.
Renting things out
Similar to selling things you no longer use, if you have a spare room or have something useful that others may pay to use, you can consider renting them out. Common items that get rented out include the driveway, cameras, tools, expensive designer clothes, RVs, or vehicles.
Earning more can be seen as a good thing but some people tend to spend more when they earn more. You can be conscious of your spending and spend only the same as you are now or find ways to spend less.
Ways to spend less
Perks at Work
This is similar to a savings retail website like Groupon but it is comparable to corporate discounts offered by employers. With Perks at Work, you get savings on things like live shows and events, hotels, car rentals, flights, self-improvement, even gifts for your friends and loved ones. You can also earn WOWPoints from your purchases that you can apply toward a future purchase. One-hundred WOWPoints equal $1 and they never expire. We’re giving away a Perks at Work membership to the first 4,000 people who sign up for our email newsletter—all free!
Living in a digital age means getting more flexibility with how you use your accounts. If you have roommates, it may make sense to share subscriptions like Amazon Prime or Netflix. Make sure to read the service agreement before you share passwords as sharing varies by company.
Buying and selling used things
If you don’t already, and don’t mind doing it, buying or selling secondhand may save you some money. Common items to buy used include cars, clothes, baby clothes, books, tools, and furniture. These items tend to depreciate, which is why you can usually get them for cheaper if you buy them used. If you have items around your house you no longer need and were going to get rid of them anyway, you can de-clutter and have a yard sale or find another vendor to sell them to.
Other things to consider
Long-term savings plans
Spontaneity tends to be a part of freelance life. One month you’re living like a king or queen, another month you’re scrimping by with coupons or stealing condiments. This can make it difficult to plan for the long term and save for things like your retirement, which is why having the intent to save for your retirement is all the more crucial.
Long-term savings plans are different from keeping your savings in the bank. Savings accounts keep your money in cash for immediate access and may work better for short-term savings goals. Most retirement accounts don’t allow withdrawal without penalty until retirement, which means more incentive to not touch your money and let it grow overtime. bSolo does not offer financial advice. Please consult a financial advisor if you need help on deciding which long-term savings account to open. In the meantime, here’s what may be available to you for consideration.
|Traditional IRA||Up to $6,000 in 2019 or $5,500 for 2018, optional $1,000 catch-up contribution if age 50 or older||-Potential tax deductions on annual contributions
-May rollover your 401K from your previous job
|-Withdrawals during retirement are generally taxable
-Potential penalties for early withdrawals
|Roth IRA||Same as Traditional IRA||-Withdrawals during retirement may be tax-free
-Allows you to withdraw contributions, but not earnings, tax free and penalty free anytime
-You can have a Roth IRA even if you already have another retirement account
|-You may be able to rollover your 401(k) from your employer if it was also a Roth IRA but most 401(k)s from employers are traditional by default
-No tax deductions
-Contributions subject to income limitations
|SEP IRA||Up to $56,000 in 2019 ($55,000 in 2018) or up to 25% of your net earnings, whichever is less||-Contributions are tax deductible
-Annual contributions not required
|-Withdrawals in retirement are taxed
-Has a $280,000 limit on compensation
-No catch-up contribution available
|Solo 401(k)||Up to $56,000 in 2019 or 100% of earned income, whichever is less. Optional catch-up contribution up to $6,000 if age 50 or older||-May appeal to those who can and want to save a lot of money for some years and less for others||-Requires filing paperwork to the IRS each year if you have more than $250,000 in your account
-Can be a bit complicated to maintain
|Simple IRA||Up to $13,000 in 2019 ($12,500 for 2018), optional catch-up contribution up to $3,000 if age 50 or older||-Contributions are tax deductible||-Withdrawals in retirement are taxed
-Requires heavy paperwork
-Early withdrawals are taxed as income with 25% penalty during the first two years (including rollovers) and 10% after that
|HSA (Health Savings Account)||In 2019 up to $3,500 if single or up to $7,000 for a family||-Offers tax advantaged savings for qualified medical expenses, including doctor or hospital visits, co-pays or prescription drugs
-Can take with you if you had this from a previous employer
-Can rollover savings to next year
-Can use funds for qualified expenses anytime and non-qualified expenses without penalty after age 65
-Can invest HSA in stocks, ETFs, or mutual funds
|-Requires you to be on a high-deductible health insurance plan (HDHP) with a deductible of at least $1,350 if you are single and $2,700 for a family plan
-Can’t be enrolled in other medical coverage including Medicare
-Can’t be claimed as someone else’s dependent on a tax return
-The maximum out-of-pocket expenses for the year is $6,750 if you are single and $13,500 for a family plan
Max out your deductions
Filing taxes may not be optional, but that doesn’t mean you can’t try and make it work for you by taking deductions you eligible for. You may be able to write off your business expenses and take tax savings on things like home office space, insurance plans, vehicle expenses, and even cellphone business expenses.
Being in control of your credit
Credit cards may not work for everybody. If you have a large amount of credit card debt, you may want to make paying that off a priority. If you can, paying off your cards each month in full can increase your FICO® score and lead to better deals on loans. If you struggle with credit card debt and need help, you may want to consider credit counseling or avoid using your credit card altogether and stick with only debit or cash. Another option is to put a credit freeze on your account. Credit freezes are usually used as a measure of security to prevent identity fraud. If placed, it will prevent opening new loans such as credit cards and mortgages. There is usually a small cost associated with freezing or unfreezing your account.
If you have business expense needs but don’t want to use a credit card for it, you may want to consider borrowing a small business loan from a place like Community Development Financial Institution (CDFI) where they put community over profit first.
Paying off debt
With variable income, you may find it helpful to set aside a percentage of your income toward your debt every time you get paid instead of a fixed amount per month. Not all debt is equal. You may have heard of good debt and bad debt. Good debt is having a mortgage or student loans because they offer a potential asset in the future and allow tax deductions on the amount paid. Bad debt is almost everything else aside from what you can write off for your business expenses.
If you have multiple loans, chances are, the interest rates will be different. Focus on paying off the bad debts with the highest interest rates first while continuing to pay the minimum on good debt. If you have debt from multiple credit cards, you may want to consider consolidating your debt into a zero-interest balance transfer card and call the company to see if you can negotiate a lower APR.
What to do with extra money
Sometimes, if we’re lucky, we get occasional extra money, such as getting an inheritance, Christmas money, or winning some lottery money. You may also have occasional income such as driving for a rideshare, housesitting, or dog walking. Since this is additional income that you don’t need to live on, you may want to consider having a separate savings account where you don’t touch the money except under dire circumstances. You can also treat this as your emergency fund and make regular contributions to it.
Make your own savings rules
Living off variable income means customizing the way you save. Getting a savings app like Qapital allows you to set your own savings rules, such as automating your savings every time you get paid, or rounding up your purchases to your choice and moving the change into your savings account (for example, if your round up rule was $3 and you spend $4.60, the purchase will get rounded up to $7 with $2.40 going into your goal). You can use it for a short-term savings goal and have a joint-savings account for shared goals. bSolo is not affiliated with Qapital. We do not get paid endorsements for mentioning the app.
Adjusting your habits and perception on saving
Having great planning skills can help boost your savings as you tend to pay the most for convenience. Changing your views on what you need versus what you think you need is a part of adjusting your habits. If you’ve owned a car ever since you could drive, you may think you will always need a car or can’t picture a life without the convenience. Whereas someone who lives in the same city as you but has never had a car wouldn’t miss not having a car at all. Other habits that may affect your savings is depending on spending to boost your mood. If you find that you tend to buy things to feel better, you may want to find the reasoning behind it so that your emotions don’t control your spending habits.
It’s not about stripping to the bare bones and neglecting the joys of life. Enjoy a dinner out occasionally. Treat yourself to a pair of your favorite brand shoes once in a while if you can. Just make sure you budget and plan those expenses in. Or find ways to appreciate the things in life that are free or low-cost or make use of what you already have. Evaluate your spending habits on a regular basis to see if there’s an opportunity for savings you may have missed. Being a savings ninja is more about the psychological factor and your perspective on spending. Adjust your thinking to make savings work for you.