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5 Financial Questions to Ask Yourself Before Going Freelance
Retirement savings
As a freelancer, you are solely responsible for your retirement.
Ensure to budget for yourself in this regard. Opening up an IRA or Roth IRA seems to be the obvious step.
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Where to live
As a freelancer today, you can work from anywhere.
New freelancers like to live in a city where it's easier to network or source new clients. They might like to choose somewhere where their money will go further, taking into account housing costs, tax rates, and freelancer ecosystems.
Personal or Business Banking
Profits from your freelancing career can't simply be added into your personal bank account for the following reasons:
- Mixing personal and business finances can lead to an impossible task at tax season.
- You can be personally liable for lawsuits against your business.
- You'll fail to build business credit.
When you go freelance, open up a business checking account and get a business credit card.
Accounting help
Keeping track of contracts, invoices, overdue payments, and tax can become a burden.
There are several low-cost and free accounting and business management software options to help you stay on top of your finances. During tax season, it may be useful to make use of a professional accountant.
Retirement savings
As a freelancer, you are solely responsible for your retirement.
Ensure to budget for yourself in this regard. Opening up an IRA or Roth IRA seems to be the obvious step.
Consider insurance costs
... before going freelance. Health insurance costs will likely mean private, high-deductible insurance plans through the Affordable Care Act.
You may also need liability insurance, depending on your field or your clients.
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Automate anything you can
Assuming you have enough to cover the bills and aren't pulling an overdraft fee, start by automating your retirement savings. You know you need an emergency fund, so automate. Do the same with increasing your 401(k) contributions each year, or paying off your credit card debt.
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Talk About It
Many times, partners do not see eye to eye, have different preferences or moods. Money is the No.1 issue that couples argue about, according to studies.
It is crucial to discuss financial goals and retirement plans with one's spouse, figuring out a strategy in advance, to avoid any confrontation later.
Saving up For Retirement, Together
- Firstly, save up for the emergency fund, which is three to six months of expenses, and set it aside. After that, least 15% of your combined gross household income should go towards your retirement, once all debt is cleared.
- If only one of the partner works, you still can save up for retirement using a Spousal IRA, provided a joint tax return is filed. For details, you can consult an investing professional.
- It is also a good idea to clear up the old 401(k) accounts which are hanging around from the old jobs and put one's investments in order.
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Financial planning
...is the process which provides you a framework for achieving your life goals in a systematic and planned way by avoiding shocks and surprises.
Try making a budget
- Create a full inventory of expenses in front of you: Categorize them into fixed and variable; urgent and non-urgent; necessities and luxury; avoidable and unavoidable.
- You can create a hierarchy of needs and decide which one’s to address first. It’s all about prioritizing.
- Accept that you have limited resources and unlimited wants. But you have to manage your resources. The sooner you accept this fact, the better you can control your impulses towards avoidable expenditures.
Maintain a personal balance sheet
It’s a statement wherein you can jot down your assets and liabilities.
- Pull together your bank statements and other proofs of the liabilities
- List down your assets like the bank balance, all investments, home value, and value of other assets.
- Take a sum of all the assets to arrive at the total value of your assets.
- List down your liabilities the (car loan, home loan, credit card balances etc.)
- The sum of all the liabilities will show the value of the money you owe.
- When you subtract the value of liabilities from assets, you get your Net Worth.
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