Money Management and Living on a Budget for Freelancers – Part 2.5: Expenses, Continued

This is part 2.5 rather than 3 because all my discussion of expenses had been intended for one post. However, I turned out to have a lot to say about coupons and grocery savings. So let’s pick up where we left off.

But first, I wanted to share a relevant read from this week: Kickstarter’s Happening newsletter included a link to The Creative Independent’s Guide for Financial Survival During the COVID Crisis. It’s by a financial planner who offers in-depth advice based on different scenarios you might be facing at this time (also some info about when and if to expect the $1200 stimulus check). Some of the tips I’m taking to heart: don’t panic and sell off your investments just as they’re losing money, and do find ways to lower your expenses.

Gifts, charitable giving, and causes:

I have a number of causes I believe in and want to do the most good for. It’s important to me that the charities I support are high-impact and efficient. There are a few ways I categorize that:

• First, there are organizations that allow me to support a cause while more or less doing “business as usual”. Arcadia energy could count as one of these on the environmental side. Similarly, I’m a Fair Trade shopper, getting items such as Women’s Bean Project soups, Mata Traders dresses, AlterEco chocolate, Equal Exchange coffee, and Franciscan Peacekeepers lotions at Plowshare Fair Trade Marketplace here in Waukesha. “Fair Trade” products must meet certain standards for living wages, safe working conditions, and sustainable environmental impact. For example, Fair Trade art and household items are sometimes made of recycled or “upcycled” materials, which is super cool.
• I also support causes that I believe are run in a sustainable, informed way, especially ones that operate based on the priorities of the communities they serve, and with leadership from those communities. These include Engage Globally and Roots of Development. I’ve also been an ACLU member since 2016.
• The third set of causes I support are high-impact because they’re addressing very large concerns in a systematic way. GiveDirectly has an efficiency rate that’s hard to beat, in that about 96% of my donation to them goes straight as a cash transfer to people in extreme poverty, who know best what they need to use that money on (according to GiveDirectly’s research, they often use that money on upgrading to a metal roof, buying more and better-tasting food, and sending their children to school). I also admire GiveDirectly’s research, and my monthly donation currently contributes to their ongoing study on a basic income program. I support the Nature Conservancy because 86% of donations go to preserving vulnerable and vital habitats. Lastly, microloans through Kiva are a sustainable way to help support entrepreneurs (including women and “green” entrepreneurs) around the world by helping them access financing. Once a Kiva loan is repaid to me (without interest to me, though Kiva’s microfinance field partners do charge interest to cover their own operating costs), I’m able to relend the funds to a different entrepreneur. Over the years, an initial $200 donation to Kiva grew to something like $1500 in loans.

As I mentioned in my previous post, charitable giving is the source of a lot of my stationary! I think this is thanks (and I mean that with some sincerity) to the Nature Conservancy and ACLU donations—GiveDirectly certainly doesn’t bother with this kind of fundraising—but I get regular fundraising appeals from a wide variety of charities, and these often involve “free gifts”. While I can’t always respond to the fundraising appeal, the paper is already printed (and accounted for in the organization’s fundraising budget) so frankly I don’t feel guilty for using it (I have a friend who does; instead of using them, she donates notepads and stationary to St Vincent de Paul). Thus I have a wide variety of notepads, address labels, greeting and Christmas cards, and even stickers, as a side effect of my giving.

I should note that some charities are partners with MyPoints, mentioned in previous posts as source of coupons and bonus income—meaning you can earn points for your donation to them. It’s worth checking if your own favorite charity has a MyPoints offer available. This is especially likely when you’re making a recurring donation, which is something I prioritize in my giving, even when this means supporting just a few organizations with a smaller donation per month. These recurring donations are reliable and charities can more easily incorporate them into their budgets. And speaking of budgeting, when I’m given the opportunity to select what area my donation goes to, I try to select “wherever there’s most need” or “unrestricted”. From my experience serving on the boards of nonprofits, I realize administrative tasks like staff wages, insurance, and printing are equally vital to the success of an organization, but grants and donors rarely want to fund them. Because I’m already giving to organizations I trust to work efficiently and with guidance from their constituents, I’m hardly going to begrudge my donation going to paying their office rent or the salary for a field officer. They deserve flexibility to use my donation.

By serving on the boards of nonprofits, I also donate time. Currently I serve as a co-president of Plowshare Fair Trade and Education for Peace and as treasurer for the Waukesha County Green Team. This helps me act on behalf of causes that are important to me in my own hometown, provides a bit of socialization that working from home as a freelancer doesn’t, offers opportunities to learn new skills, and keeps me connected with the wider community.

Lastly, I fund a few creators on Patreon. I put this under my “gifts and charitable giving” line in Mint, though it’s at least as much for my own fun and entertainment (and hey, maybe it keeps me from always running over on “Books”).

Health insurance and healthcare:

If you’re a non-American freelancer, feel free to skip this section.

I’ll be frank: the ACA marketplace is what makes freelancing possible. At least for me, and I have several advantages in that I’m young and healthy. Your choice of health insurance is limited by what’s offered in your state marketplace, but if it’s an option for you, I can speak highly of my experience with Common Ground, a cooperative insurer rather than a for-profit one (if Common Ground isn’t available to you, consider researching cooperatives in your own state). I’m satisfied with their selection of healthcare providers and happy with both my premiums and especially with the rebates I received when their actual costs were lower than projected in 2018! I’m not counting on that happening every year, but any health insurance provider who pays me money back is a choice I feel happy with.

My current plan is high-deductible (again, I’m young and healthy, and I also have emergency savings that could cover that deductible), and this along with other arcana make me eligible for an HSA, a Health Savings account. I got one through my local credit union. The (untaxed!) interest I earn on my balance is high enough that I’m actually treating this as an investment/longer-term savings, and pay for my medical expenses from my checking account instead—generally by using a credit card and earning the 1-2% cashback rewards, which add up fast when you’re covering American healthcare costs.

For over-the-counter medications and supplies, I go to CVS, where I’m a member of their rewards club (with its not-infrequent “25% off your entire purchase” coupon mailings). Walgreens and other pharmacies also offer membership clubs for discounts that are definitely worth your time. Getting a coupon offer or sale alert is my cue to stock up on products I commonly need for cleaning, hygiene, and basic first aid like bandaids, painkillers, Pepto-Bismol, and decongestants. All the stuff that I want to be able to stumble to my bathroom and administer in the middle of the night rather than having to go shopping right when I need it.

Healthy habits are also important: I aim to eat a balanced diet (having red meat as an occasional treat rather than a staple is good for both my body and my budget) and get regular exercise. I’m lucky to be in a downtown area that’s very walkable and has several parks close by. For a while, until my instructor moved, I took tai chi classes through the Waukesha Rec Center, where they were extremely affordable—about $40 for six hour-long weekly classes. Your own local parks & rec department might have similar offerings, and it’s a good opportunity to get out, move your body, and meet people.

Rent & renters’ insurance:

I’m lucky to live somewhere the cost of living is still manageable (in fact I moved back to the Midwest from Washington, DC when I decided to freelance full-time). When it comes to rent, once thing I’ve noticed is that costs per person do drop dramatically if you take on a roommate or two and get a multi-bedroom place. But I need a lot of space and quiet to focus for work, so it’s the rare person who would make a good roommate for me. The added expense of renting a place on my own is a worthwhile investment for my business (and sanity, and ongoing relationships with friends). Still, roommates could be a good option for some freelancers—especially if you’re able to do most of your work at home alone during the hours when your roommate is out at their own job.

Many landlords require renters’ insurance, and it’s always a good idea. Equally important is being ready to make, keep, and provide rigorous documentation of any item you might need replaced should it be stolen or damaged. Read up on what’s involved in making a claim so you’re ready ahead of time.

In my emergency fund savings account, I try to keep several months’ worth of rent, and a year’s worth of renter’s insurance (plus car insurance, which is bundled with it). The benefit of this, in addition to earning a bit more interest on the savings balance, is that I can pay off my insurance in a single check, which earns me a discount compared to paying monthly.

Taxes:

As a freelancer, you have to plan for these. Particularly self-employment tax, which hits you in just about any tax bracket and can hit hard. I set aside around 20% of my earnings to pay the IRS quarterly (usually I get at least a small rebate, but my mind rests easier if I’ve probably overpaid than if I’ve probably underpaid). So when you’re calculating your hourly rate, keep in mind that only around 80% of it is going to stay with you, rather than going to pay income tax, Social Security, & etc. (Or if you’re using a platform like Fiverr or Upwork, only 80% of the 80% they pay you. Keep this in mind should you ever hire a freelancer, too.)

I don’t have any particular tips for keeping self-employment tax expenses down—the IRS might get a little too curious if I did—except to remember to track your business expenses. But also, I’m going to stand atop an inexpensive soapbox and say I do not have any strong moral objection to paying taxes, because a robust social safety net (much of self-employment tax goes to Social Security) and infrastructure do me a lot of good as a freelancer. My only source of resentment is that I don’t think Jeff Bezos is paying 20% in taxes on what he makes from the books I write and help edit and publish. I mentioned a few alternatives to Amazon in my section on book-buying in the previous post, but my resentment will only truly be soothed with a more institutional reform. By the standards of my friends making guillotine memes, I’m a spineless moderate.

Retirement Savings and Investments

I’ll speak more on these in the following sections, but I should note I max out my annual contribution to my Roth IRA and my HSA on the first of January—i.e., the first day of the year—whenever I can. This means I’ll be earning interest/investment gains on it for the entire year. To have that money available, I stock the funds away in my high-interest savings account throughout the previous year, just as I do for my renter’s insurance.

Conclusion

And that’s my Mint budget for expenses! What’s left of my income, after these are paid, becomes savings (and actually, as described in my first post, several types of irregular income go straight to savings).

This is not actually the ideal way to save: freelancers should seriously consider the “Pay yourself first” model, where you take a percentage off the top of your earnings to send directly to a savings or retirement account, then pay expenses from what’s left over after saving. Similar to how I describe budgeting to pay my self-employment taxes. It’s a better method to build up a savings cushion and determine a workable budget. I’m lucky enough to already have a pretty workable budget (my bank account balance is positive at the end of each month), but even so I’ve taken steps toward this paying-myself-first model, such as the retirement investments at the beginning of the year, and the decision to deposit my Upwork earnings directly in my savings account, living as much as I can off what I earn through Fiverr and client invoices via PayPal instead.

In the next section, I’ll talk more about payments and accounts for both receiving and making them. In the last section, I’ll talk about savings and investment accounts.