Recently on one of my break-from-writing walks, I was listening to the Bad with Money Podcast. Erin Lowry of the Broke Millennial was discussing the basics of investing for retirement as a self-employed person. Her new book takes a deep dive into investing topics. It got me thinking about how freelance writers and parents need to know some basics of investing, if they don’t already.
Prior to meeting my husband, investing money wasn’t on my radar. In my twenties, the greatest financial feat I’d accomplished was opening a savings account and paying my bills on time. Don’t get me wrong, I’m not underselling that accomplishment but I’ve learned a lot since then. Now that I’m a parent with a kid who may need college money in eight years, I think about investing strategies a lot more these days.
First Deal with Debt and Taxes
Let’s get one thing out of the way first. If you have credit card or high interest rate loan debt, work on paying that off first.
Here’s the math. If you are putting your money into an investment that pays five percent and you have a credit card that costs you sixteen percent, it’s smarter to pay off the credit card first. If you have a low interest rate student loan that is three percent but you can earn five percent with an investment, you may choose to take half of your extra money to pay down the debt and half to put into an investment.
Before deciding on your investment plan, make sure you have set aside money for self-employment tax and expenses for your writing business. An easy way to make sure you have set enough aside for taxes and expenses is to automatically transfer forty percent of your gross earnings in a high yield savings account. Then when you pay your yearly (if you don’t earn much) or quarterly taxes, you’ll be prepared. That leaves you with sixty percent of your income to spend or invest.
Pro tip: If you want to learn more about figuring out paying taxes as a freelance writer, check out The Writing Gals video with Bridget Baker. She’s a tax attorney and writer who does a terrific job explaining how to make sure Uncle Sam gets his take.
Get a Savings Account
A savings account is an easy way to invest long or short term with no risk.
Shop around for a good interest rate. Some online only banks have higher interest rates on savings accounts than your local bank where you may have your checking account.
While you’re at it, set up a savings account for your kids too! If you don’t have enough of your own money to put into their account, start depositing their birthday checks from grandma. You can let them know they can save up and withdraw it later if there is something they really want. It’s never too early to teach kids how to save money.
Buy Real Estate
Are you currently renting? Depending on where you live, buying a home could be cheaper than your monthly rent payments. You’ll also see the value of your home rise year after year. If you are still having post traumatic stress from the 2008 financial crisis, that’s understandable.
The key with real estate is to think of it as a long term investment. If you know you can stay put for ten years, you’ll likely be able to ride out the fluctuations in the market.
For example, my husband and I bought our home in 2011 when the real estate market had recovered and before prices began to shoot up again. Now eight years later, the value is nearly twice as much as what we paid for it.
Before jumping into buying a home, figure out what neighborhood and school districts will work for you. Check out some open houses. It’s a low pressure way to see what homes are for sale without committing to working with a real estate agent right away.
Once you’re serious, you may want to visit your bank or credit union to get pre-qualified and meet with a real estate agent. They will let you know how much loan you’ll qualify for. Make sure you’ve got some sort of down payment ready too. You may need between three and twenty percent of the purchase price of the home depending upon the type of loan you qualify for.
Invest in an IRA instead of 401(k)
Maybe retirement seems so far off it’s hard to think about it. But the sooner you start investing in retirement, the greater the sum of money you’ll have when you are ready to leave the full time work force.
If you have a traditional employer, you may already have a 401(k), maybe you are even get an employer match of some kind. That said, if all of your income is from freelance writing and you are self-employed, an alternative choice is an IRA (individual retirement arrangement).
You may choose between a traditional or a roth IRA. The traditional IRA means you will be contributing pre-tax dollars and with the roth it would be post-tax dollars. You’ll need to decide if you’d rather pay tax now or later when you take out the funds.
When you shop for a brokerage, make sure to compare fees to make sure you are getting a fair deal. Also, if you don’t have a large sum of money to start with, compare different plans because some will require a small amount of money to get started but others will need a larger sum of money.
Summing it Up
Does all this investing talk make your head spin? I get it. This may be a lot to think about, but letting your money grow is worth the effort when you work so hard for it in this feast or famine business of freelance writing!
Note: This post is comprised of my own thoughts and personal research on the topic of personal finance and investing. I was NOT paid or sponsored by any financial institution to write this post. That said, we are Amazon affiliates and this post may contain links that when clicked may lead to a small commission for Pen and Parent.
Melissa is a freelance writer, author and blogger. She specializes in finance, food, health, parenting, and real estate. She enjoys helping fellow writers and parents from her writing nook in Portland, Oregon.