Freelance Finance

Your savings will only grow if you establish a savings plan and stick to it religiously. Employed folks have 401k’s and other options that allow them to pay themselves first, before they get their hands on their money. This reduces the chance that they will spend it before they save it. A self-employed person can do the same thing, but you need to have the steps laid out in advance. I’ll post a chart showing this in the near future, but for now, here are the steps. For simplicity’s sake, I’ll assume in this example that we are saving a mere 10 percent of every check that comes in the door. (You will want to save much more than this, especially to cover taxes. But for those just starting out, ten percent illustrates the concept nicely.)

1. The check arrives. Pound your fist in the air and scream, “Yesss!”
2. Deposit the check into your Checking/Spending account held at a local bank. (Make sure this account is linked to your online bank.)
3. When the check clears, deposit 10 percent into your three online back accounts in this fashion:
—Send 3 percent to your Emergency Fund
—Send 3 percent to your To-Pay-Taxes Fund
—Send 4 percent to your Retirement Fund
4. As each check arrives, lather, rinse, and repeat.
5. When your Emergency Fund reaches its goal of 3 to 6 months’ living expenses, you don’t have to save for Emergencies anymore. Do this:
—Send 1.5 percent to your Health Account (held online) to pay for health insurance premiums, fund HSAs, pay doctors, etc.
—Send 1.5 percent to your Dreams Account (held online) to pay for future dreams such as a home, a car, vacations, etc.
6. When your Retirement Fund reaches the amount you need to invest in a mutual fund, brokerage account, or some other investment instrument, transfer that money to that investment of your choice, such as:
—a ROTH IRA
—a SEP IRA
—a solo 401k
—a brokerage account
In the future, it is possible that you can transfer your 4 percent retirement money directly to one of these accounts, bypassing the online bank Retirement Fund altogether. But I’ll explain that in another post.

That’s it, folks. It’s that simple. This is exactly the plan you should follow even if you decide to increase your percentage beyond 10 percent, to 12, 15, 20, or even 30 percent of every check that comes in the door.

If you have’t been saving, or you have trouble saving, it’s best to start with a low percentage. So low that you barely feel it. If you do this for a couple of checks or even a couple of months, you’ll realize that you can spare to save more, and you will happily increase the percentage. If you start too ambitiously, you may find yourself raiding your accounts to pay bills, and you’ll abandon the plan. So start small and work yourself up.