After nine years of running an independent business, I’ve come to two conclusions. Working for yourself? Easy enough. Planning retirement for yourself without the help of employer matching and automatic deductions? Not so much.
Personal finance experts will tell you that retirement planning is something you need to start right away. That way you take advantage of compounding gains in your retirement account and build a sizable nest egg without feeling a sacrificial pinch.
If only. In the early days of freelancing, my money traveled through my checking account and my checking account alone. Freelancing is an uncertain enterprise - a maxed-out checking account served as a buffer. Although I did have some money in a Roth IRA, I rarely contributed to it. Like many freelancers, I prized short-term stability over long-term growth.
That uncertainty isn’t unique to me. According to an Ipsos study, some 69% of millennials aren’t even saving for retirement, even those with steady paychecks.
But you know what happens when you don’t save for retirement?
That’s the problem. Even as my business grew, my prospects for retirement did not grow with it. Then, one day, I realized that my checking account - the same one I’d been using as my buffer for inconsistent freelancing income - had come attached to an investing account. I could start putting aside more money with a few clicks. Using advice from personal finance experts like Ramit Sethi and Dave Ramsey, I put a plan in place and bought my first three shares of stock.
The Problem: Finance Experts Don’t Think About Freelancers
Personal finance blogs and books don’t really think about us. They think about someone with an employer that matches contributions to a 401(k) and a steady paycheck that arrives every two weeks, consistent to the penny.
Ever pick up one of those “take charge of your money” books? People who work for themselves are a side-note. If we’re mentioned at all, it’s in one small section, and it always sounds like this: “Oh, and if you have an irregular income, just make one small tweak.”
These experts don’t address the fact that an irregular income completely changes the way you need to approach personal finance. Budgeting is different. Retirement investing is different. Saving is different. You have no employer matching, no company setting up your 401(k). There is no company. There is only you.
You are the company.
And when you have an inconsistent income, setting aside even a small percentage of your budget for retirement seems excessive. Shouldn’t you worry about where your next dollar comes from before you start planning for your twilight years?
The Solution: Start Small, But Get Started Now
I lucked out. I made a few decisions over the course of my “ignore retirement” phase that made it easy to build momentum. Even early in my freelancing career, I knew that I wanted to do something for retirement, so I connected my Roth IRA to my checking account. It was, quite literally, the least I could do.
As it turned out, that infrastructure was vital for making the first step possible. What if you have no such infrastructure in place? I’ll tell you what I did.
Start somewhere so the process isn’t scary anymore. My first regular retirement contributions were $50 per month. I read Sethi’s I Will Teach You To Be Rich and that was the lowest number he gave. So I did it. As you might imagine, I did not become wealthy overnight. But it accomplished one thing: When I dove into the deep end of investing later, the water was warm.
Focus on personal behavior rather than optimization. There are math nerds out there who want to save every last penny by optimizing everything first. I am not one of them. I want to know what the deciding factor of success is so I can chip away at it, bit by bit. As The Simple Dollar notes, that deciding factor for retirement is simple: the rate at which you put aside money. Get that going first, and you can always optimize later.
Those two tips are vital, but nothing meaningful happens with your personal retirement planning until you solve the budgeting riddle. There are plenty of budgeting apps you can use, sure. None of them are built for freelancing. But I’ll tell you what I did that made it possible to put aside much more money for retirement - I built a minimum budget.
I keep an Excel spreadsheet that lists my expenses. Excel calculates the minimum monthly total I need to earn to stay out of the red. Because I make investing a priority, I include Roth IRA contributions as a “necessary” expense. Anything I earn beyond that gets invested or put aside to pay taxes.
Principles for Freelancing and Retirement Success
Retirement is a long way away. But thanks to the system I’ve put in place, I no longer worry about whether the goal is attainable. I can look at the numbers and see that it is - as long as I stay consistent.
Here’s what I do that keeps that confidence alive:
A monthly money review. As the saying goes: What gets measured, gets managed. I use Personal Capital to track all my accounts in one place and measure my net worth. I do my review about once a week, but the most important thing is to get over the fear of checking your bank account balance. The more you know about where your money is going, the better you’ll control it - which means more money going towards your personal savings rate.
Compound interest. Are you 22? 20? 18? It doesn’t matter how little you can contribute - open a retirement account and start investing. The experts are right about it. There’s no point to waiting.
Remember these two words: savings rate. It’s more important that you put money to work in investments than fret over the ideal place to put your money. Just as long as you don’t put all of your money into a single stock, but rather something like an index fund, you’ll be fine. Savings rate is by far the most important variable in your personal retirement story.
Working for ourselves, we walk the tightrope between freedom and the complete lack of financial security. We don’t have to. Just as you’ve seized the reins on the way you generate an income, it’s possible to take control of what happens to that income.
I remember the feeling of starting out. Sending away $50 a month with the hopes of seeing it again in 50 years seemed silly, almost ludicrous. Putting more than $100 into the stock market felt incredibly risky. But when it comes to investing, it’s not the dive that counts - it’s the amount of time you spend in the water.
Dan Kenitz is a freelance writer based in Wisconsin. He’s previously written for Grasshopper and GoToMeeting. You can follow him on Twitter.