Finances for the freelancer

It’s liberating to leave the ties of the 9 to 5 job and become your own boss, but with flexibility, there comes more responsibility.

These days, it’s becoming more and more popular to leave the company and opt for freelance work instead. Whether it’s a high-priced consultant, near-starving artist or an up-and-coming entrepreneur, benefits packages don’t come with the new career. An individual benefits package is something to consider when it’s time to start making money and living as a freelancer, and there are plenty of options.

The first thing to take care of when it comes to working for yourself as a freelancer is to put enough money in the bank to cover mortgage and other monthly expenses for six months to a year. Paychecks aren’t always on time in the mailbox, and there’s no set salary to count on each month. If at all possible, pay a salary to yourself each month to make sure you have a set income and can save the dough for living expenses.

While saving for mortgage payments, your health insurance doesn’t have to be extinct with the freelancer title; making sure your family is covered in case of illness isn’t impossible. Individual health insurance can be pricey, but there are options while you get your new business afoot. New laws allow COBRA coverage to cover 65 percent of health insurance for up to a year for laid off employees. There are also companies such as the Freelancers Union that advocate and help provide benefits and retirement choices for independent workers.

Without the cushy, corporate 401(k) plan, a nice nest egg can still be put in to place while working in your home office. The best plan for most freelancers is a Simplified Employee Plan (SEP) IRA as an individual retirement account. It’s the most no-hassle plan that you can open at most banks, and you can contribute up to 20 percent (up to $49,000) of the year’s income until April of each year. If full-time work is in your future, simple IRAs also allow you to contribute up to $11,500 of freelance income made on the side.

Once a benefits package is in place, you get to enjoy the tax breaks of being a freelancer. Business expenses for home office supplies are tax deductible, as well as your health insurance premium and health savings account contributions. The SEP IRA is also tax deductible, making the new benefits package and savings plan for your new business a good step to job freedom and a worry-free home office.