How to Start Saving Money as an Independent Contractor
Saving money can be a real challenge for anyone navigating life amidst consumer quirks and capital perks. A 2019 Bankrate survey found that less than 40% of Americans have enough savings to dampen a $1,000 blow to their wallets. This becomes even more difficult for independent contractors.
Gig workers must be their own accountants–managing all debits, credits, taxes, and deductions throughout the year. On top of that, there is the risk of income instability and financial volatility due to the inevitable off-season, sudden events, or potentially overcrowded market.
If you want to be financially successful and secure, especially as an independent contractor, it’s imperative to consider the weather of the journey carefully. For tradesmen of the gig economy, flexibility and freedom come with requirements that are totally within reach.
In this article, we will address what strategies are most effective for saving money and how to start saving money as an independent contractor!
Set Money Saving Goals
Before asking how to start saving money, it helps an unspeakable amount to set some concrete goals. Such goals encourage you to develop long-term money habits and increase your odds of hitting your benchmarks. Consider whether your goal is to buy a new flatscreen TV or sponsor a week’s vacation in Portugal.
Regardless of which, don’t forget to factor in your basic needs versus your desires. These needs should also include an emergency fund in case things go sour when you’d least expect them to.
The next step is to create a timeline of your savings. Depending on the price value of your target, determine how much money you’ll need to set aside each month, and commit it to habit. To make tracking easier, you can keep a money-saving calendar to keep tabs on when and how much money is flowing in and out of your bank account.
One great tool to use for knowing how much money to allocate to what is by using a money-saving calculator. There are plenty of options when it comes to calculators, so foresight goes a long way. A good rule of thumb is to use the 50/30/20 rule – 50% on needs, 30% on wants, and 20% on savings.
Since independent contractors have the added burden of managing their own taxes, we recommend a slightly augmented ratio. Gig workers should put aside at least 20% for taxes to compensate for untaxed profits. That leaves a little less for saving, but those who managed their records responsibly are likely to earn money back at the end of the year.
Lastly, consider if you plan to save money in a savings account. If so, be sure to calculate the increase in monthly interest with every deposit. The benefit here is that the more you save, the more your money works for you – a simple yet effective tip on how to start saving money!
Manage Your Finances
Once your money-saving goals are all lined up, the next tip for how to save money is to organize your finances. As a freelancer, the likely first step is to separate your business expenses from your personal expenses.
Keeping separate accounts makes money management cleaner and swifter. It also fills the stress gap when it comes to the time to file taxes and write off tax deductions. Remember to keep a logbook of your expenses and save receipts to make things easier.
Next, you want to start creating a budget that works for you. Budgeting can be really tough for freelancers due to the financial volatility. Still and yet, do your best to generate a general average monthly income based on your average yearly income. This will guide you to follow a solid budget all year round, but be realistic about your expectations for peak-season and low-season.
Remind yourself to avoid impulsive spending by budgeting ahead and spending on only the things which truly matter. Use a money-saving tracker app specialized for budgeting to set you off on the right foot and check out our budgeting tips for freelancers if you still need help sticking to your parameters!
Pay Off Debt
This may seem a little counter-intuitive, but it “pays off” in the long run (pun intended). If you’ve got any high-interest debt building up under your name, do your best to resolve it as soon as you can! Paying off the money you owed means that more of what you have belongs to you.
Large or small debts with high rates can quickly double or triple their value. Not to mention that unpaid debt can ruin your credit, which could otherwise be advantageous for anyone in need of a start-up investment for their business. Luckily, we’ve got a management plan for self-employment debt too.
Change Daily Habits
Even excluding avenues of less familiarity, there are always life patterns that can be augmented or adjusted to better serve our financial interests. Here are a few that apply to nearly everyone, and take little effort to employ:
Round up the prices when grocery shopping
This little trick is one of the better tips for saving money on groceries. The process is simple – just declare a budget the next time you go shopping and round all the prices of your items up to the nearest dollar amount. Make sure to stay within your spending range. When the time comes to checkout, you’re guaranteed to have spent less than your budget.
Wait for the sales
Certain items are cheaper during certain times of the year. Conduct some hearty investigation about the best when and where to purchase whatever you’ve got your eyes on, and strike when the iron is hot. The same goes for produces and knowing what is in-season thus will be cheaper for you to purchase!
Get a Piggy Bank
It’s a classic for a reason. Grab a piggy bank from the nearest convenience store, or keep the now-empty olive jar as a money-saving jar to contribute. Sometimes all it takes is to follow old-school methods to tuck money to the side for when you need it.
Now you’re ready to kickstart your savings and start building better financial habits! For more financial and gig economy resources delivered right to your inbox, be sure to subscribe to our newsletter to stay up to date!