Answers from a freelancing expert 🧠

We sat down with Jenny Smith, a financial advisor who is also self-employed, to better understand how solopreneurs can achieve financial security. Jenny has over a decade of experience advising freelancers and full-time employees on their financial journey. We hope some of these nuggets will be helpful to you in yours!

Q: What’s the first thing self-employed individuals should do to set up their finances for long term success?

A: When you’re a self-employed individual, it’s hard to have a sense of you versus your business. You really need to visually set up for “what’s mine, and what’s not.” Think about setting up a business account. Give yourself a visual barrier.

Q: What do you see as a common mistake when it comes to finances?

A: Not taking care of the business needs first. Almost every small business owner gets stumped on taxes. Not only is it important to have a business account separation, but it’s also important to have a tax separation. When a dollar comes in, you need to immediately move a portion to taxes and then never touch it. Almost all business owners spend Q1 trying to figure out how to pay taxes from last year.

Just hold the mindset that money you put into a tax account is not technically yours.

All your deposits should go to your business account and can function as if you work for somebody else. Even if you’re not opening separate accounts, all that matters is you visually know what you can touch and what you shouldn’t touch.

Q: Unlike steady paycheck jobs, solopreneurs have to deal with unpredictable income. How might freelancers approach saving?

A: Approach saving in percentages of your income. For example, instead of making savings a mandated $500/month, try to make it 10% of what you make.

In addition, you could be better off doing three saving goals with half the effort than doing one and falling off the wagon, because then at least you are going to accomplish something! We are imperfect, especially when it comes to money. So, if you have a hundred bucks and you’re going to put 33 bucks towards each saving, you’re already accomplishing something.

SumIt Tip: SumIt was built with the philosophy of saving based on percentages. We call them Reserves, which is that visual barrier Jenny suggests. Connect Your Accounts to start using Reserves.

Q: What are savings that a solopreneur should think about preparing for?

A: Taxes, Retirement, Emergency, and Incidental.

Taxes are a MUST.

I believe Retirement is a MUST too. Pay yourself first. This doesn’t mean going out for dinner.

Paying yourself first means setting aside money for your future.

Business owners tend to work to the pressure they feel. Setting aside for retirement first means there would be less left to spend, which keeps the pressure on. If saving for your future is last, then it may not happen at all. “I’ll start tomorrow” and tomorrow never comes.

The first step is getting in the habit of carving the money out to do it. Start with a bank account for retirement so you’re at least creating the pool of money that you hope to save for someday. Then eventually, you could deposit into a true retirement vehicle (an investment account). Start by getting into the habit of putting away a dime for every dollar you earn.

SumIt Tip: Retirement Reserves is the automated pool of money! Connect Your Accounts to start using Reserves.

Q: Final point — what might be a discipline that you’d encourage solopreneurs to instill?

A: Evaluate your finances on a bi-weekly basis — once every two weeks. We’re bred to function in two-week sprints. The rest of the time really needs to be spent on finding more money to make!

Our Takeaways:

1. Start putting money away for your future, even if it’s a small amount at a time! SumIt can help you with Reserves.

2. Take care of your business first. This means your taxes and expenses. A business account can help you visually separate your money! After this, then you can take care of your needs. SumIt is structured to handle your cashflow in that order.

3. Think about what’s worth your time. As a business of one with departments of many, your time spent getting into the weeds of finances, legal, means less time doing what you’re great at. Simplify what you can so you can do more of what you love.

You can accomplish all three in the SumIt app today!

Disclaimer: This is not intended to provide financial advice. The information in this article is provided for education and informational purposes only. It is general in nature and is not specific to you the User or anyone else. You should not make any decision, financial, investment, or otherwise, based on any of the information presented without undertaking independent due diligence and consultation with a professional financial advisory.

Securities and advisory products offered through Principal Securities, Inc., Member SIPC, Des Moines, IA 50392. Jenny Smith, Financial Representative of Principal National Life Insurance and Principal Life Insurance Companies,Principal Securities Registered Representative, Investment Adviser Representative, and a member of the Principal® Financial Network. Smith + Frieberg is not an affiliate of any company of the Principal Financial Group®. 2337954–082022