Financial Decisions Every Freelancer Should Make

Finances can be tricky waters to navigate. Questions abound at every turn, as does the general sense of, “Am I doing this right?”

Because over 1,000 of you tuned in last week for our Financially Wise Women™ webinar and dozens more commented on how helpful this post on the stock market was, we’ve brought back Jerremy Alexander Newsome to lend his expertise to another topic: self-employment.

Being one’s own boss is a common goal in almost any field nowadays and while that comes with significant lifestyle perks, one big drawback can be the difficulty of figuring out how exactly to pay for it. When you freelance or work for yourself, there’s no HR department telling you where to sign or how to best plan for your future, so that’s why we’re attempting to nudge you in the right direction with our conversation with Jerremy below.

Darling Magazine: When first striking out on your own as a freelancer, what financial categories should you consider?

Jerremy: Incredible question. I like to approach any and all financial propositions with these questions: “How much value am I adding to the world?” and “How much are my time and value worth?”

Because these two questions can help everyone focus on what is often at the forefront of our mind: becoming financially free. Also known as, making money while you sleep. Which is very difficult (initially), especially for freelancers. But it’s rarely about how much money one makes and it’s usually how much money one keeps that determines if they ever truly become financially free.

Therefore, the “save some for me” mentality is vital and should be the utmost concern. Why work to only pay your bills? Save 10-20% of everything you earn and save it for yourself. Set those savings aside (in cash) and learn over time using books, podcasts, videos, webinars, presentations and the power of the internet how that money can work for you, allowing the power of compounding interest to grow your money without you actually having to do anything.

Remember, answering that question of “how do I make money while I sleep” is crucial.

Answering the question “how do I become more valuable” will keep you at the pinnacle of your game and in your field. As freelancers, we always have to strive for improvement and growth! We can always better our best, right?

Overhead should be a freelancer’s number two concern. There are items like taxes, rent or mortgage and your various business expenses. Adulting can get expensive. My advice, look over all of your bills three times a year to see if there is anything you can cut back on. In the early years of their career, most freelancers can easily avoid spending gobs of money by simply drinking less alcohol, rarely eating out and dodging extremely high costs for transportation.

… it’s rarely about how much money one makes and it’s usually how much money one keeps that determines if they ever truly become financially free.

DM: How much should someone set aside for taxes?

Jerremy: Death and taxes, right? I’ll be succinct on this one. Write off everything you are allowed to, but still plan on saving 20% for taxes, just in case. Therefore, if you’ve done the math, those who are self-employed or planning on it should determine how feasible it is to live off 60% of their income. Saving 20% for themselves and 20% for taxes.

Will you be broke? Uhhh…yeah, but you won’t stay that way with this formula.

DM: What retirement options are available to someone who is self-employed?

Jerremy: Plenty. My biggest thought on this one is if you are self-employed, then are you really going to “retire?” I mean, what is retirement anyway? Simply no longer working, sitting out the couch and watching Netflix all day? That’s fun for about a week and then any normal, driven human being will become quite bored.

The concept of retirement is changing. Simple as that. Working from 20-60 and then retiring to then receive a pension from that 40 years of tenure at that company is a thing of the past.

You must first define what retirement is. I realize that sounds a tad altruistic, but if we do not know what a goal looks like, how will we reach it? My advice is to think about what you’ll want to do at retirement. Will you simply travel? Spend time with family? Visit the grandkids? Play squash, tennis and golf for 12 hours a day?

Consider “retirement” as a time in life when money comes to you. Meaning, you no longer have to seek out the work, the work comes to you. The seeking out, hustling and grinding phase is over and now you can also offer your years of experience to others along with your work to bring in an income. With the internet, there’s little reason you can’t already do what you want now — like getting some work done while you also watch Netflix, travel and play squash. (I’ve never actually played squash.)

However, to ensure you do have some money available to you as you get older, my biggest advice is to create a Roth IRA and start adding to it yesterday. There are truly millions of hours of content on YouTube focusing on this one vital piece of financial retirement. Make sure you spend at least 10 minutes this week doing some research on the topic. During this search, there’s a solid chance you’ll find one of my videos on the subject as well.

DM: How do you know which option is best and when should someone (really) start saving for retirement?

Jerremy: Start saving right now. If you don’t have more than $5,000 in a savings account and you are older than 22, you are doing something horrifically wrong. Fix your priorities immediately. And if that sounded a little overbearing or harsh, that was semi the goal. According to CNBC, GObankingrates and Motley Fool, almost 70% of American’s have less than $1,000 in savings. That is abysmally scary.

In fact, what scares people the most is not having enough money at retirement. Every time you take a sip of wine, note that’s $20 you could have put aside for savings. These small habits can build up over time. $20 here, $20 there is better than nothing.

If you have a cable subscription, that’s almost $100 you could be saving each month. Stop spending money on new clothes, new cars and new electronics. With almost everything you buy ask this question: “Will this help make me money?” What you’ll often find is that the answer is no.

Now, of course, if you’re buying drinks for a potential client, okay. Those drinks might be able to make you money. Are you buying new clothes for a modeling shoot? Alright, that will help you make money. Buying a new camera for your business, understandable. Buying a new BMW because a friend made fun of your 2010 Toyota Corolla… maybe find better friends.

The concept of retirement is changing. Simple as that. Working from 20-60 and then retiring to then receive a pension from that 40 years of tenure at that company is a thing of the past.

DM: How much do you need to put aside?

Jerremy: $1,000,000? I mean, as much as humanly possible. Money is endless, money is boundless. There is enough money on this planet for every single living human to have $1,000,000,000. Seriously. So, money is never the issue. It’s there for you. If you want it, become more valuable. Money can be created and if you are creative, learn ways to create more money. Sell something worth $1 to one million people. Or sell something worth $400 to only 2,500 people.

In all sincerity, it’s very possible. Start saving $35 a week at the bare minimum. Again, according to CNBC the median retirement savings of families between 56 and 61 is only $17,000. Ugh, that number hurts my heart. You could blow that in one weekend touring NYC.

Bottom line, no number is high enough. Your #1 job should be paying yourself for all that hard work you do. Save, invest, grow.

DM: There’s a lot of talk about Social Security these days. How much should someone in their 20s or 30s count on that in the future and is it even an option for the self-employed?

Jerremy: Wow. Amazing question. This is obviously purely opinionated and thusly, in my opinion, it’s not something I would consider factoring into my future plans. We all pay into Social Security with every paycheck, W2, 1099 or invoice we receive or pay. And I’m fine with that. America is an amazing country. But Social Security eventually will either go bankrupt or it will simply change what it looks like and how it pays out. Therefore, if you are under 30, don’t even consider it as part of your future income stream. If it’s there, sweet. You might get an extra $1,200 a month without having to work for it. Just don’t count on it being there.

DM: Between paying off debt, creating a savings account, investing in stocks and saving for retirement, it can feel impossible to do any one of those things well. Any advice for knowing where to start?

Jerremy: Yes. That’s a laundry list for sure and each one carries so much weight. But, let’s focus on the things that we can easily control.

If I have to decide between investing and paying off debt, pay off debt first. Why? Debt costs you money. With your #1 goal of paying yourself first, apply all of those savings to any existing debt. Eradicate the smaller balances first on your credit cards and go from there. If you have debt and it’s going to take you 2-3 years to pay off, that’s okay! Having zero debt will lower your stress level. And we all know what happens with less stress in our lives.

I actually wrote an article called “How to Retire on 3k.” Now granted, it’s focused on learning how to use the stock market to generate income, but I still focus on first, removing debt, and second, learning how to properly and safely invest.

I hope this was helpful! Keep in mind, success is simple but difficult. Like walking 1,000 miles. As freelancers, if we want to be financial literate, debt free and making money while we sleep, then it’s going to take time, devotion and dedication. Everything in life, if you want to be rewarded for it and successful at it, incorporates that simple recipe!

You totally rock! Thanks for reading this excerpt. If you have any other questions, concerns, thoughts or feedback, please let me know!

What other financial topics do you wish you were more well-versed in?