The following article is from our friends at Catch Benefits for informational purposes only, and is not intended to provide, and should not be relied on for, tax, retirement, legal, or accounting advice. You should consult your own tax, retirement, legal, and accounting advisors before engaging in any transaction.
Saving for retirement isn't easy for anyone, but it's especially tricky for those who work independently. For one, you can’t access the typical retirement vehicles that employers offer, like 401k plans. You also don’t have an employer matching your contributions. And, with an income that is more likely to fluctuate from month to month, it might feel particularly hard to set aside for your own contributions. In other words, saving for retirement can be both discouraging and daunting to figure out. But that doesn’t mean you shouldn’t. The truth is that the hardest part of saving for retirement is just getting started! Here are three tips to give you that little nudge you need to start setting aside for your future!
1. Create a budget with an inconsistent income in mind
Budgeting lets you account for your expenses and cut back on them where possible. Unfortunately, those in the wedding and event industry can be subject to what consultant Lizzie Davey calls feast or famine cycles. It means you earn well in some months (i.e. wedding season) but get nothing in other months, leaving gaps in cash flow and making it a challenge to come up with a monthly budget.
Challenges aside, create a budget that considers the ebbs and flows of your income. Start by tracking your income per project, as this will give you a clear picture of how much you’re earning. Also, figure out how many projects you typically take on in a given year. This way you cover all of the important bases and still have some income for when you might be out of work. Reference the guide below:
- Allocate 50% of your after-tax income for necessities
- Allocate 30% for your wants
- Allocate 20% for savings and debt repayment
2. Organize your finances with personal and work accounts
To better organize your finances, have separate personal and work accounts. We suggest opening four accounts: two for your business and two for personal use. Your business accounts should be (1) a business checking account for client payments and business-related expenses, and (2) a business savings account for taxes and business emergencies. For personal accounts, you should open a (1) personal checking account for expenses like mortgage and utilities, and (2) personal savings account for your emergency and retirement funds. This will let you know where your money is going and which accounts you're drawing the most funds from, so you can better track both your spending and saving habits.
Catch can help make this process seamless through our AP member partnership. When you sign up, you decide on your contributions (e.g. towards retirement, general savings, paid time off, etc.), and Catch will automatically set aside a portion of your paycheck to go into these accounts. Catch will even walk you through how much to set aside, based on your current financials and your future goals.
3. Don’t forget your Roth IRA
There are two types of accounts available to independent workers: a traditional IRA and a Roth IRA, both of which function similarly to a 401k. We recommend a Roth IRA. With a Roth, your contributions can be invested and grow tax free. After you retire, you will also be able to make tax free withdrawals. And, unlike other retirement vehicles, you are able to withdraw your original contributions from a Roth IRA without tax or penalty should you need money in an emergency, prior to retiring. This makes it both tax-advantaged and flexible, perfect for the self-employed.
Catch has you covered here too. Just answer some simple questions about your risk tolerance (along with info on your current financials and goals) and Catch will recommend an investment portfolio. You can then open a Roth IRA (or a traditional IRA if you prefer), all through the app! Sign on the dotted line and you’re all set.
Small Steps For Your Future
Listening to financial gurus could have you in full panic attack mode trying to get your finances in order. Once that happens, it’s tempting to ignore things. The most significant step you can take for yourself is to begin saving. If you’ve got $5 a week, then do it shamelessly. Your contribution is a positive step.
Once you start, it gets a lot easier. Do we all wish we’d started earlier? Sure. But it’s never too late. Contributions now are still valid and an essential step towards financial stability. Each payment is a gift to your future self, so start treating yourself now!
To get started on saving for retirement, head over to our partner Catch. As an Aisle Planner Pro, you’ll get 6 months free of Autopilot.