Freelancers: 4 Key Steps Toward Long-Term Financial Stability
The freelance workforce in the U.S. is growing rapidly. In 2017, 57.3 million Americans freelanced. That number climbed to 73.3 million by 2023, and projections from Statista estimate it will reach 90.1 million by 2028, representing a more than 40% jump in just over a decade.
Unlike traditional employees, freelancers typically don’t receive consistent paychecks or employer-sponsored benefits. Annual income among freelancers usually ranges from $48,750 to $68,268, which hovers around the national average salary of $63,795.
Freelancing Requires Unique Financial Planning
Freelancers must manage their income, savings, taxes, and spending with extra care. Here are four practical steps to help create a strong financial foundation:
1. Track Your Income Sources
Start by reviewing your past income and estimating your expected earnings for the year. List out all your clients and how much revenue each one brings in. If you’re heavily reliant on one client, think about how you’d replace that income if the contract ends. Diversifying your client base can help protect your cash flow.
2. Know Your Spending Habits
Get a clear picture of your monthly financial obligations, like rent, insurance, transportation, utilities, and loan payments. Then factor in variable expenses such as groceries, entertainment, and dining out. If you’re carrying high-interest debt, you might look into consolidation options to reduce your monthly outlay.
3. Adjust Spending or Boost Income
If your expenses are outpacing your income, it’s time to reassess. Cancel unused subscriptions, limit non-essential purchases, or consider earning additional income through side gigs like delivery driving or tutoring. Even small changes can make a big difference over time.
4. Save Smart & Prepare for Taxes
Without employer-paid sick leave or retirement plans, setting aside money is vital. Aim to save at least 10% of each payment you receive. Build an emergency fund for slow months or unexpected expenses. Also, remember that as a freelancer, you’re responsible for both income and self-employment taxes, including a 15.3% tax that covers Social Security and Medicare. Most freelancers must pay estimated taxes every quarter.
Invest in Your Future
As your savings grow, it may be wise to speak with a financial advisor about retirement options like a SEP IRA or solo 401(k). Strategic investing now can set you up for long-term financial independence.
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