Tag: Recession

The Truth About Retirement In The Gig Economy

Years Of Roller Coaster Cash Flow…

Thinking about money gives me heart palpitations. As a small business owner in a creative field, my focus has always been squarely on my work and my clients. I send invoices off at lightening speed so I can get back to the real work.

Small business owners, freelancers, gig economy worker bees: we have all purchased tickets to ride a financial roller coaster. Money comes and goes in unpredictable waves. It?s easy to think things will always be sunny when you?re riding high on cash flow. But I?ve had enough down cycles over the past 15 years to know I can?t get comfortable.

The elephant in the room for me is retirement. For years I reinvested profits into the business, figuring I could save for retirement at some future date. When my industry, along with every other, took a nosedive in 2008, I was forced to dip into my savings. Fast forward 9 years and I?ve managed to make the business profitable again, purchase a nice apartment and maintain a comfortable standard of living.

But I have saved little for retirement.

Looking back, I wish I’d set up an automatic withdrawal and investment account, even if the contributions would’ve been small. Compound interest would have been nice.

“Compound interest is the eight wonder of the world. He who understands it, earns it…..he who doesn’t….pays it. Compound interest is the most powerful force in the universe.” -Albert Einstein

… Means Playing Catch-up For Retirement

I am now having to play catch up and it doesn’t look pretty. A peek at a retirement calculator confirmed my fears.??The good news is, I’m putting my retirement decisions on a fast track.?A few years ago I opened an IRA account and because I cannot contribute more than $5,500 per year, I decided to invest aggressively by purchasing mostly technology stocks. So far that account is up a whopping 30%. It isn’t a lot of money and that’s the only reason I feel safe taking such a risk.

Next, I opened a SEP account through my business (something I should have done ages ago) and opted for a more balanced portfolio made up of low cost?ETFs. I am contributing the maximum allowable each year, which in my case is about $20,000. These are pre-tax dollars and I am counting on that compounding interest to help reach my retirement goals.?This plan has certainly curtailed my bottom line, which means I’ve had to cut back on my expensive sushi and sake habit. But I feel safer knowing the money is working for me.

When You’re Building A Business, It’s Hard To Save

When you’re busy building a business from the grown up retirement is the last thing on your mind. As free agents it is hard enough to keep track of all the tax liabilities, let alone a retirement account. It seems almost trivial. But time flies when you’re having fun and before you know it, your friend who’s been doing the corporate grind for 15 years suddenly has a nice nest egg and you have…..nothing.? I’ve had to re-calibrate the way I think about spending.

I used to pay my business expenses, taxes and living expenses, in that order. Whatever was left over was reinvested into the business. Now, after paying business expenses and taxes, I pay my retirement accounts. There is less money to reinvest in the business and less money for living expenses.

Predictably, this has made me a more careful and mindful consumer. If there is a piece of equipment that needs upgrading, I will purchase used instead of new. I have lowered my overhead by consolidating staff while taking on more work myself. I cook more meals at home and Trader Joe’s is my new Whole Foods. Living a bit more frugally has proven to be less stressful than I anticipated.

What Finally Helped

The anxiety of planning for retirement largely came from the worry that I might not be able to keep up with monthly or yearly contributions in a consistent manner. So I simply didn’t deal with it. What finally worked for me was?automating my retirement contributions. I made them realistic. I made them a fixed line item, like my monthly mortgage. Once I did that, I had no choice but to pay into the accounts.

Practically everyone is familiar with Warren Buffet’s ‘pay yourself first’ principle. When you are running a business, simply keeping it afloat seems like a tremendous accomplishment. Moreover, many of us believe our small businesses will in fact be part of our retirement plan. Unfortunately there seem to be fewer guarantees about the long term viability of any given small business these days. Industries, especially creative ones, are changing so rapidly, it is impossible to predict the value of an asset 20 years from now.

Although I’m more than a little late to the party, saving for retirement using traditional investment vehicles has paradoxically forced me to streamline my business and perhaps better prepare it for that uncertain future.


Darla Roost is a pen name for a gig economy creative professional thriving in New York City. Her dream is to share her stories and create a place where people can share theirs, too.?Photo by?Bonnie Kittle

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5 Tips to Avoid Financial Disaster in Wake of Another Recession

When it comes to recessions, it’s not a matter of if we will get another one. Instead, it’s a matter of when we will encounter the next one. Can you avoid financial disaster if another recession were to come down tomorrow? This article will give you a couple of tips to avoid the pitfalls of becoming unable to take care of yourself and your family.

Pump Up Your Bank Account

It’s when you have money that you should start putting away some cash in your bank account. If you can live off your savings for at least six months, then you can go on to the next step. If not, start by socking away at least 10 percent of each paycheck into an emergency fund. While you’re at it, make sure you’re banking with one of the good guys.?

Take Down Your Dependency Rate

The rate at which you depend on your work income is your dependency rate. So if you spend 90 percent of every paycheck on your expenses, then 90 percent is your dependency rate. You will want to work to take down the amount of money you spend from each paycheck, even if you get a raise. By spending less, you do the hard work that will not only make you recession proof but will make saving for retirement a lot easier.

Keep That Resume Updated

In this economy, a recession-proof job doesn’t exist. For this reason, you will need to keep your resume updated at all times. You never know when you are going to need to hunt for a new job. When you upgrade your resume when you don’t need to do so, you eliminate the worry and desperation that will come when you’re trying to get a job to avoid bankruptcy and other financial pitfalls.?According to Bankruptcy Law Office, be sure that you research all of your options before filing for bankruptcy, so that you fully understand how this choice will affect you.

Think About Getting a Side Job

These days, you can easily get a side gig and make more money to put towards your expenses, emergency fund, and retirement. You can do anything from driving people around town as an Uber driver, selling products on eBay, and designing websites for clients around the world. Almost any skill you have can get turned into a side gig, from a flair for writing well to a high amount of knowledge about social media.

Pay Down Your Debt

You want to work so that your debt amount is low and your credit score high.?Your debt to asset ratio is an important factor in determining your overall credit score. Got bad credit? Do something about it, but watch out for credit repair scams.? Do whatever you can to pay off any debt you have, whether that includes side gigs, selling possessions you no longer use in a garage sale or coming up with a stricter budget.

 

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