According to the American Opportunity Survey conducted by McKinsey, 57 million Americans were freelancers. The number of freelancers has risen by 25% over 4 years (from 2016 to 2020). The Freelancing in America report by Freelancers Union and Upwork states that freelancers contribute approximately $1 trillion to the US economy.
With many employees quitting their jobs to become freelancers, it's important to think about your financial future and how you can protect yourself. After all, you don't have the same safety net that employees do.
Here are four reasons why you need to start saving for your financial future as a freelancer.
1. You Don't Have an Employer-Sponsored Retirement Plan
The first reason why you need to start saving for your financial future as a freelancer is because you don't have an employer-sponsored retirement plan. This means that you're not getting the benefits that come with having a retirement plan through your employer. Instead, you need to save on your own. Roth IRA, SEP IRA and Solo 401k retirement plans are some of the options available to self-employed professionals.
2. You're Self-Employed, So You Don't Have the Same Safety Net
As a freelancer, you don't have the same safety net that employees do. This means that if something happens, and you can't work, you don't have the same protections in place. Therefore, it's important to have an emergency fund as a freelancer. That way, if something unexpected happens, you have the money to cover your expenses.
3. You Don't Get Health Insurance Through Your Employer
Another reason why you need to start saving for your financial future as a freelancer is because you don't get health insurance through your employer. This means that you need to either purchase your own health insurance or be covered by a spouse or partner's health insurance plan. Either way, it's important to make sure that you're covered in case of an emergency. In 2019, only 24% of freelancers had purchased a health insurance coverage (Source: Statista)
4. You're Responsible for Your Own Taxes
As a freelancer, you're responsible for your own taxes. This means that you need to make sure that you're setting aside money each month to cover your tax bill. If you don't, you could end up owing a lot of money come tax time.
October 17 is the last day to take advantage of the extended freelance tax returns!
Click here to read detailed resources by the IRS.
As a freelancer, it's important to start thinking about your financial future and how you can protect yourself. There are a few things that traditional employees have that freelancers don't - like an employer-sponsored retirement plan or health insurance through their employer - which is why it's so important to start saving now. A great way to start is by taking our free audit to check for missing benefits.