A Beginner's Guide To Investing In 2020 As A Freelancer
/In order to achieve financial freedom, we all have to learn how to make our money work for us. This is a huge mindset shift for many of us who are used to trading time for money. This approach does not build wealth and if you want to be rich in 2020, you will have to shift your money mindset from employee to entrepreneur and investor. Learning how to invest in your business as a freelancer and in other opportunities will allow you to create financial freedom.
Gone are the days where you could count on a company to provide a pension and take care of you through retirement in exchange for decades of employment loyalty. The 401(k), while an incredible retirement vehicle, will not provide all the cash you need to lead a comfortable retirement. And besides, who wants to wait forty or so years to truly live life? The beauty of being an entrepreneur is that we can live our best lives in this moment.
Regardless of the type of entrepreneur you are - a freelancer, boutique owner, consultant- your destiny is now in your hands. You are the boss. You determine how much you earn, the hours you work and the projects you take on. This presents an enormous amount of freedom and potential. It can feel liberating on one hand, and terrifying on the other. As the economy continues to shift, learning how to think like an entrepreneur or freelancer will become more critical to success and fulfillment. And your success will largely depend on your money mindset and money aura.
Me with the owner of Stone Cold Luxe boutique in Danville, CA
One of the mindset shifts that many freelancers have to make is to start thinking like an investor. While there are many examples of successful freelancers, a large percentage of them are a project away from being a rough financial situation. In order to get out of the project to project lifestyle, you have to figure out how to make your money work for you.
Thinking Like An Investor
There are multiple ways to invest. One form of investing is your business as a freelancer. This is your biggest asset and investing in your skills and marketing will yield a great return.
Other forms of investing include retirement accounts, the stock market through brokerage accounts, passion investments, and real estate. Everyone’s situation is different, however there are general guiding principles that many of us follow. To help you get started, here are is a quick guide to investing in 2020 as a freelancer.
Three Steps To Begin Investing
The first step is to understand your goals when it comes to investing. Is it to pay for your children’s college costs, retire in luxury, start a business, travel the world for six months out the year, solely for the sake of doing it? Get clear on your goals and then align your decisions to meet those values.
The second step is to understand the lingo of the different investment vehicles. Whether or not you choose to utilize them, it is helpful to have a base knowledge. Here are some terms for each area that will be helpful to you.
Personal brand or freelancing business. Key financial terms to know include:
Net Income: this is the amount of money left over after all expenses, including your salary, has been paid. This is calculated with this simple equation, Total Income - Total Expenses.
Project Profit Margin: this is how much money you earn on each project after expenses, taxes and sweat equity. This is calculated with this simple equation: Net Income / Total Income.
Retirement accounts. Common accounts for freelancers include:
Solo 401(k)
Roth IRA
SEP IRA
Traditional IRA
Stock market. Common terms to know include:
Passion investing. If you aren’t familiar with this term, check out my 60-second video.
Real estate. Buying investing property can be hugely lucrative. Some terms you’ll want know include:
3. The third step is to create a a one-year- plan for your portfolio. Investing is often a long term play, but thinking that ten or more years ahead can be overwhelming for some. Start with a bite-sized chocolate chip chunk and look out over the rest of this year. Ask yourself, at the end of 2020, how much would I like to invest? Then take that total and divide it by twelve to determine your monthly goal. One of the tools I’m experimenting with this year is Ellevest. They walk you through a fairly comprehensive assessment to determine your risk tolerance and investing goals. Then they create a plan based upon the information you share during your assessment. Other roboadvisor tools you can use are Wealthfront and Betterment.
