The personal finances the business is meant to fund
A freelance's personal financial plan provides for time without earnings, retirement and the transfer or management of assets when the writer can no longer manage them.
A coordinated financial plan
A financial plan balances accumulation, preservation and distribution, with their relative weight changing through life; the timing of retirement withdrawals can matter as much as contributions during working years. Planning for market fluctuations and avoiding decisions driven by market emotion were a certified financial planner's recommendations following the 2008 financial crisis. The suggested personal advisory board combined a certified financial planner, securities broker, certified public accountant, insurance broker, business and estate-planning attorneys, and other specialists as personal circumstances required.
Debt repayments can consume the disposable income that would otherwise be invested. A participant's 2009 recommendation was to cut up credit cards, repay the highest-interest cards first and then redirect the former monthly payments into investments. The same financial-planning discussion urged making savings a priority alongside mortgage payments rather than continually postponing them until income rose or loans were cleared.
Diversification addresses the possibility that one year's best-performing asset class may be the next year's worst. A certified financial planner recommended reviewing portfolios with advisers and rebalancing annually when a category exceeded its planned share. For retirement withdrawals, the recommendation was to reduce discretionary spending in down years so that taking money out did not shorten the portfolio's life unnecessarily. In the same 2009 discussion, another participant recommended using insurance-related investments to cover basic retirement needs and other investments for discretionary wants.
Benefits, holidays and emergency savings
Lack of employee benefits—including retirement plans, health or professional insurance, paid leave and sick leave—can make personal and professional life harder to manage and reduce job satisfaction. Two freelance writers' 2023 suggestions included exploring a shared retirement plan with other freelances and negotiating paid time off with clients, while recognising that such arrangements would not always be possible. Setting aside money for holidays can prevent time without earnings becoming an additional source of stress, and other freelances can offer practical advice about managing it.
An emergency savings fund can provide for unforeseen expenses, illness or injury. In 2019, one late-career freelance particularly recommended an emergency fund for writers without short-term disability insurance and funded it through automatic regular transfers from a checking account. That writer used an online savings account, noting that such accounts often paid more interest than ordinary bank accounts.
Sources of retirement income
Retirement income is commonly described through three pillars: state pensions funded by social-security or national-insurance contributions; occupational pensions arranged by employers or trade unions, including a writer's own company; and personal pensions, savings and investments. The types of pension within each pillar vary substantially between countries. Freelances without employer pension schemes need to plan their own provision for greater financial freedom later in life.
The countries in which a person has worked affect how heavily each pillar should be relied on. A 2015 retirement-planning account recommended supplementing limited state provision through occupational or personal arrangements and considering whether national pension systems would remain sustainable as populations aged. Its example of an occupational arrangement was a pension scheme funded by a freelance's own limited company.
Personal pension schemes and other savings provide alternatives where a company pension is unavailable. In the 2015 UK account, stakeholder pensions were defined-contribution personal pensions with low, flexible minimum contributions and an available default investment strategy. The options described also included personal savings plans, property portfolios, individual savings accounts, wrap accounts and self-invested personal pensions, with the latter two providing a framework for a wider investment choice for people willing and able to manage assets themselves. Property investment was described as the riskier alternative to savings plans, and all investment as requiring a balance between different kinds of risk. The 2015 recommendation was to seek qualified professional advice, including an independent financial adviser for UK residents or assistance from the relevant national association for freelance professionals elsewhere.
Saving early and regularly
A 2010 planner’s general savings recommendation and a 2019 freelance’s advice for writers nearing retirement proposed different proportions of income. A financial planner speaking in 2010 recommended saving 10%–15% of annual income for retirement, using suitable US vehicles such as a 401(k), individual retirement account or simplified employee pension, and diversifying into investments the writer understood. In 2019, an experienced freelance advised writers nearing retirement to save at least 20% of gross earnings where possible. Another late-career writer advised putting aside as much as possible in a self-employed retirement plan when past investment had been insufficient.
Early saving gives money more time to work. A certified financial planner's 2012 illustration used an assumed 8% return to compare three ways of reaching $229,388: $154 a month for thirty years, $663 for fifteen years or $3,122 for five years. The same planner advised putting retirement savings aside before other purchases and discussing the choice between a US simplified employee pension and an individual retirement account with a financial planner, since income level affected which suited best.
A freelance's 2019 reflection distinguished a lean-times cushion from adequate retirement savings: setting aside the former had helped, but insufficient investment in the latter left retirement provision less robust than intended. The advice was to establish a retirement plan from the first day of self-employment and save a percentage of all income, starting at any age.
In AMWA's 2019 survey, 36% of 173 full-time freelance respondents had contributed the legal maximum to a retirement account in 2018, while 31% had contributed nothing. Maximum contributions were most common among those aged at least fifty-five (43%) and those with over ten years' experience (40%).
Estate and succession planning
Estate and business succession planning includes wills, powers of attorney and advance-planning arrangements. A lawyer's 2010 advice was to use a will to direct assets after death and put healthcare proxies, directives and powers of attorney in writing because memories are unreliable. Legal, financial and accounting professionals can contribute to a coordinated personal, retirement and business plan.