Financial Literacy for Everyone

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One of the fastest growing segments of America's workforce is the self-employed. But with the freedom of working from home comes greater responsibility for handling all the formalities that an employer normally would. The switch from employment to freelancing requires a shift in finances and sometimes it can feel overwhelming to be your own boss.

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Here are some general guidelines for managing your freelance career with success:

Know your worth and charge accordingly. It's helpful to do some research on the Internet to find out what other freelancers in your industry and in your city are charging, but your price ultimately needs to be based on your needs. The key to determining your worth is calculating your lifestyle expenses, the hard costs of running your business, premiums for health insurance, and how much you want to be able to save every year. You can work backwards from an annual salary figure to determine hourly and monthly rates.

Use contracts. Contracts are a freelancer's best friend. You should create a new contract for each new job to help protect yourself in case a client refuses to pay or there is a dispute. A contract also sends a signal that you are running a professional business. At the bare minimum you'll want your contract to include the scope of the project, a timeline for completion and payment details. The Freelancers Union has a tool to build job-specific contracts.

Have a financial buffer in your checking account. With freelancing, your steady flow of income can experience dry spells. It's important that you have enough funds to sustain you through those lean times. Make sure you have an invoice agreement in place before you begin a job. Are you billing every two weeks or once a month? You'll want to know when you can expect to receive a deposit into your financial institution. If you have set up automatic payments for monthly utility bills, for example, make sure you always have enough money in your account to cover those recurring costs.

Be diligent about tracking expenses and payments. Wage earners who become 1099 contractors are responsible for payment for the employee side of their Social Security and Medicare taxes on their earned income and also for the employer's side of these taxes, doubling that amount to 15.3 percent of earned income. You can lower your tax liability by maximizing deductions. Business expenses can be a major source of deductions, but you must track them throughout the year. You can also write off the expense of hiring an accountant, who can help you put together your tax payments and forms.

Be on the lookout for your next opportunity. The freedom of being a freelancer means you work as much or as little as you want. To help secure your financial future, always look for new clients and set up new contracts before current ones are about to finish up.

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