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When you decide to become a freelance professional working from home, there are a few aspects of life that many people tend to forget. Taxes, insurance and retirement still need to be planned for. While you may believe you’re safe from these three obstacles now, they can come back and bite you when you least expect them. You need to have a plan in order to keep the wolves at bay.
One of the best methods to plan for taxes each year is by using a savings account that you do not touch for any reason other than to pay taxes. This can be quite difficult to accomplish at times especially if an emergency arises and you need the money. However, if you can hold off not tapping the account to pay various bills or expenses, it could make each tax season much easier on yourself.
Take 10% of what ever you make from each job or payout and place it in the savings account. For some individuals, this is close to the equivalent of claiming “0” on your dependents of a W4 form. Throughout the year, this 10% savings account will accumulate interest. The more you have in this account, the more money it will generate on its own. By the time you need to pay your taxes, you could have a few extra dollars after sending the check to the IRS and state governments. Instead of stressing out about paying these amounts, you can have a “refund” from your savings account each year.
There are many ways you can pay for insurance as a freelance professional. The Internet is full of affordable healthcare for those that have a fluctuating income. You may even have local insurance vendors that may be cost effective as well.
One other method you could try is similar to the tax idea above. Instead of 10% of your income, dedicate 5% to a savings account that you strictly use for health insurance purposes. If you can keep yourself in semi-decent good health, this savings account could grow quite quickly. This is aside from the fact that the account could generate additional interest over time.
Retirement is another aspect that freelance professionals commonly overlook. As the examples above, there are many ways you can still invest in a retirement plan privately. However, there are quite a few benefits to having your own savings account as opposed to something like a 401K or other retirement plan. First of all, there are no penalties for withdrawing your own money from a savings account as opposed to 401K or PERA.
If you feel comfortable with the stock market, you could save enough money to purchase stocks in greater bulk in the hopes that the value will increase later. Holding a share or two may be nice. Unless it’s a company like Google that you bought for six dollars that grew to more than $500 per share over the span of a decade, a single share won’t be enough. Of course you can lose everything you invest which makes many people leery about playing the stock market for retirement purposes – especially in today’s uncertain world.
One of the most difficult aspects of maintaining your own finances as a freelance professional is being determined not to use those bank accounts for fun stuff. These three aspects of life are vital for your future success and you need to budget wisely if you don’t want to drown in debt – especially from the IRS. Try not to think about how much money you are saving. Simply move the amount of money to the proper savings account and forget it exists. Try not to even look at the balance as it will give you ideas of spending the money.