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Being your own boss can deliver benefits well-known by many self-employed workers: Flexibility, freedom and no fear of your lunch getting stolen from a shared work fridge.
Apparently, it also helps you get a better handle on your finances.
More than three-quarters (78 percent) of independent workers say their nontraditional employment status lends itself to improved money management, according to a recent survey by T. Rowe Price.
"These workers become much more engaged in their financial life," said Stuart Ritter, a senior financial planner at T. Rowe Price in Baltimore. "When you're doing this on your own, there are a number of things you pay more attention to than you would otherwise."
An estimated 30 percent (46.5 million) of the nation's 155 million workers participate in the gig economy either through full-time or part-time pursuits, according to 2017 research from the U.S. Bureau of Labor Statistics. About half of them view contract work as their primary job.
While many people struggle to get a handle on their finances, independent workers have some additional challenges. With no company withholding taxes, paying for time off and offering benefits like a retirement plan, flying solo comes with different considerations.
(Source: T. Rowe Price)
If you count yourself among these gig workers — yet feel like you're winging it when it comes to your financial picture — here are some tips to get you up to speed.
To really know how much money you have to work with, begin by determining how much of your self-employment earnings will go to Uncle Sam.
Unlike workers who have taxes withheld in their paychecks, the gig economy typically means becoming your own payroll department.
"If you're doing it on your own, you have to set the money for taxes aside," Ritter said.
You also are expected to make estimated tax payments in four installments throughout the year. (See chart for 2018 deadlines.)
Generally speaking, putting aside about 30 percent of your earnings is a good rule of thumb.
The actual amount you pay could be higher or far lower, depending on a variety of things like your income and expenses, deductions and your tax rate. If you had self-employment earnings in 2017, looking at your tax return can give you a good starting point.
Remember, though, individual tax rates have generally gone down as of Jan. 1 and a new 20 percent deduction on certain income for small businesses (which includes solo workers) could reduce your tax burden even further.
If you do side jobs on top of getting a regular paycheck with taxes withheld, you also might be able to adjust your withholding to reflect the additional tax you'll owe from self-employment.
The big benefit from planning for taxes is twofold: You're less likely to be surprised by a tax bill and also will know how much of your earnings actually are available to you.
"The habit of estimating your taxes helps force you to budget," said Alex Marlantes, co-founder and CEO of mileage and receipt tracker Everlance.
Additionally, remember to save all business-related receipts and records so you can factor in those expenses when you pay estimated taxes.
Budgeting can be challenging for workers whose self-employment income could flood in one month and dry up the next.
In fact, volatile income is the biggest challenge cited by independent workers in a recent survey by Everlance, with 44 percent of respondents saying it's the most difficult part of being an independent contractor.
"Instead of a weekly paycheck, you're relying on how good business was that week," Marlantes said.
Additionally, sometimes even getting paid can be a challenge. While established companies typically will pay contractors in a timely fashion, some independent workers are relying on individuals to pony up when promised.
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"I encourage people to take payment the day of service if possible," Marlantes said. "Otherwise, you are kind of extending the customer some credit. You don't need to do that."
Nevertheless, this embedded uncertainty means making sure you give yourself a cushion.
"In fat months, save the extra money," Marlantes said. "It's good to build your own buffer."
Additionally, keep track of which expenses you have to pay every month and which come with flexibility, Ritter said.
Part of being your own boss means being responsible for your own retirement savings. For the self-employed, a variety of options exist.
Many independent works turn to a traditional or Roth IRA. For 2018, the contribution limit for these retirement accounts is $5,500 ($6,500 if you're age 50 or older).
Contributions to a traditional IRA can be tax-deductible, although the benefit can be limited if you are covered by a retirement plan through another job. Same goes if you're married and your spouse has access to a retirement plan at work.
For single and head-of-household taxpayers in that situation, the deduction is phased out for modified adjusted gross incomes between $63,000 and $73,000 for 2018. If you are married and are covered at work, the phaseout happens for incomes of $101,000 to $121,000.
Not covered through a job but have a spouse who is? The deduction begins phasing out at modified adjusted income of $189,000, and disappears entirely at $199,000.
Roth IRAs also come with reduced benefits for higher-income workers. For instance, the annual contribution limit begins dropping at modified adjusted gross income of $189,000 for married couples filing jointly. It gradually drops for incomes above that, and hits zero for those earning $199,000 or more.
"We recommend people save at least 15 percent of their income," Ritter said. "If the maximums don't let you do that in an IRA, the self-employed have options beyond IRAs they might want to explore."
For example, you could consider a solo 401(k). Like most workers with 401(k) accounts, you can put away $18,500 in 2018 ($24,500 if you are 50 or older). However, a solo 401(k) lets you put away another 25 percent of your earnings on top of that, up to a limit of $55,000 for 2018.
Other options include either a SEP IRA or Simple IRA, as they are known. A SEP IRA comes with a tax-deductible contribution limit equal to 25 percent of your income, up to a maximum of $55,000 for 2018.
A Simple IRA, on the other hand, lets you put away up to $12,500 for 2018. People age 50 and older can put in extra $3,000. However, this type of account also generally comes with the requirement that the employer (that's you) make matching contributions.