You never know what the future holds, and if you depend on the income that you earn as a freelance writer, you should strongly consider setting up some financial safety nets. What will you do if a client refuses to pay you, or if a payment that you are depending on is delayed? What will you do if you become ill and cannot work? What will you do when you are ready to retire?
Unfortunately, these are issues that younger freelance writers do not consider. It’s hard to imagine a time when writing will no longer be possible, profitable, or even desirable when you are young. I was once a young freelance writer, and although I am now setting myself up with multiple financial safety nets, this is something that I should have considered years ago. An example of why this is so necessary is in my last post – Getting Back to Work.
With that said, here are some financial safety nets that all freelance writers should strongly consider:
1. A savings account. What do you do when you have several weeks where there is no work? Hopefully, you have a savings account for this very purpose. This is one of the first financial safety nets that a freelance writer needs to start building. Each time you are payed for a job, take at least ten percent of that pay and put it in a savings account specifically set up for those lean times when there is no work to be had!
2. A retirement account. Open up an IRA. Talk to your banker or accountant and get that done TODAY. Learn the difference between a traditional IRA and a ROTH IRA, and choose the one that works best for your situation. Also consider investing in Mutual Funds and in bonds. You will eventually want or need to retire.
3. Health Insurance. You must have health insurance! Even if you are young and healthy, you need health insurance. You never know what is going to happen, or when it is going to happen. Shop around for health insurance that will cover all of your potential health needs, including doctor’s visits and prescription medications. One health emergency without insurance can wipe you out financially.
4. Short-Term and Long-Term Disability Insurance. As a freelancer, you will have to pay the full cost of your health insurance and disability insurance, however a portion of the premiums are deductible when you file your annual taxes. You may think that you do not need this, but you do. What if you break a finger or your hand? What if you find out that you have Lupus? What if you get a traumatic brain injury? Things do happen.
5. Prepaid Legal Services. You can get prepaid legal services that will greatly help you in the event that a client will not pay up for work that you have done. The cost per month is determined on the plan that you choose and the state that you live in, but for many freelance writers, the fee is worth it. I have used prepaid legal services for about seven years now, and I pay $75 a month for the service. I do not need the services each month, but I have found that having the service saves me money over the course of a year. I always get paid what is owed to me. I can get legal advice on contracts that are presented to me, and have contracts drawn up for me, and more. For example, earlier in the year, a client owed me $2700, and didn’t seem eager to pay me. I contacted my plan provider, they issued a letter, and I got paid. I also make use of my legal plan when people steal my content and publish it elsewhere on the Internet – and I always get good results. The plan costs me $900 per year, and it is tax deductible.
These are just five ways that you can protect yourself financially as a freelance writer. Do you have more suggestions that freelance writers can use to protect themselves financially?