You know that as a freelance writer you’re responsible for everything to do, or don’t do, with your money. You get to pay the day-to-day expenses, the cost of your equipment, your taxes, including self-employment tax, and for your own retirement and health insurance.
If you hardly know how to think about all this, you’re not alone. None of this is simple. Know too that you don’t have to totally get your money house in order in a day or a week or even a month. It does have to be done, but you can actually pace yourself about getting all the bits and pieces in order. Of course, you’ll never get it done if you don’t start.
Savings for Writers
Ideally, freelance writers and other freelancers will have at least six months living expenses in savings. That may seem like a lot, but it is the amount recommended by experts for self-employed folks, and freelance writers are definitely self-employed. You can get there a bit at a time.
If you’re tracking your expenses, you know what your expenses actually are. Just multiply the total by six for your initial savings goal. Don’t be surprised if you’ve got nothing like that in savings – yet. Six months expenses in savings is a goal.
The trick is to begin to discipline yourself to put aside a certain percentage of every check you get into savings. It can seem pointless in the beginning. When I first got serious about this, I actually used a free checking account because I couldn’t maintain the minimum balance in a savings account. It seemed as if the moment I got $20 in that account I’d have to take out $19. Eventually, however, it began to stick, partly because knowing my expenses allowed me to be much clearer about how much I had to charge.
Now I have multiple savings accounts and it’s a great feeling. I actually put away 12% of every check 18% for taxes plus at least $3 a day, and often more, in a separate account called retirement, etc. I also have an account that’s building nicely for a new computer and even another for a new car and for next Christmas. I use Ingdirect for my savings because I can do it all online.
Taxes And Freelance Writers
In general in the United States, there are two forms of taxes that freelance writers need to be aware of – taxes on income and self-employment taxes which will fund your social security payments when you do retire. In addition, your state may also require you to pay income tax. The general guideline is 30% of your income to cover both, but you’ll need to work with a tax professional to determine exactly how much you’ll be paying. Remember, you’ve got legitimate business expenses and, if you’re tracking your income and expenses regularly, you’ll be in good shape when it comes to figuring taxes.
I strongly suggest you set up a special savings account for your taxes and self-employment insurance. It’s less tempting to take money out of it before taxes are due if the money is in its own account. For my tax savings I use a credit union.
Health Insurance for Freelance Writers
Health insurance is a huge issue here in the U.S. We may get some shift with the new administration, but until and unless that happens, writers and other freelancers are on their own. Of course, if you’ve got a spouse, you may be covered, but if you’re single, well, it’s hard. It’s even worse if you’re a single parent.
Joining a group National Writers Union, the Authors Guild, Media Bistro and others is one way to access group insurance which may make health insurance a bit more affordable. Some states also offer catastrophic health insurance in one form or another. Medical savings plans are another option. Investigate thoroughly before you buy, there are lots of scams and near scams out there.
Freelance Writers Do Get Sick
If you had a regular job, you might get paid even though you stayed home because you were sick. How much sick time, of course, would depend on the job. As freelance writers we don’t get paid if we don’t work. This is one reason for the recommendation for six month’s worth of savings; it gives you a way to cover yourself if you’re unable to work for more than a day or two. You may also want to investigate disability insurance or other income protection plan in case you’re unable to work for a longer period.
I suppose it must also be said that if I get a cold, a migraine or the flu I can often get at least an hour or two of work in, which I wouldn’t be able to do if I had to get dressed and drive to an office. It’s one of the benefits and problems of freelance writing.
Vacations and Freelance Writers
I have read that aboriginal people generally work about 20 hours a week gathering, preparing and eating the food they need for survival. Sure, they have occasional periods where they are working all day just to survive, but apparently their work week averages about 20 hours. We also know that many European countries insist most of their workers take four and six week vacations.
In other words, the human body and mind isn’t designed for unlimited work. We need time off to regenerate and refresh. Not just writers and artists, but everyone. You need vacation time.
As a freelancer you may be able to take mini-vacations and/or plan for a month or more away. You may even be able to write some or all of certain vacations as business expenses, and earn some of the cost through writing about your ventures. As your savings builds you may actually want to pay yourself during your vacations.
Retirement and Freelance Writers
Freelance writers tend to work until they literally can’t. If we’re lucky, we end up with enough royalties to add to our retirement. Our self-employment taxes will fund some social security payments. You can find out how much social security will pay you at their site. Don’t obsess over retirement, but as your savings begins to build, start exploring. Check with your bank about IRAs and solo 401ks and other retirement savings/investment plans. Or work on more royalties, which may actually be more secure than some other investments.
None of this is meant to cause you stress, although it might. My goal is to help you get clear on all your expenses so you can use that information to set your fees and live well.
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