Money Management

It can be more complicated to invest when your income fluctuates. Learn about the best ways to approach investing as a freelancer or gig worker. 

Investing is an important habit no matter what type of job you have. But as a freelancer or gig worker, it can be harder to invest consistently. When you have a regular salary, you can base the amount you invest on that. Many employers also offer retirement plans, such as 401(k)s, that employees can contribute to directly from their paychecks.

When you’re a freelancer or a member of the gig economy, it’s more complicated. Your income could fluctuate heavily from one month to the next. You also may not be able to make investing automatic, like you could with an employer-sponsored retirement plan.

That’s why it helps to know the investing strategies that work well for freelancers. Here are three ways to approach investing so you can build wealth and ensure you have enough for retirement.

1. Invest a percentage of your income

One popular way to invest is dollar-cost averaging, where you invest a specific amount on a set schedule. This works well for salaried employees, since their income is the same each pay period. For example, an employee who makes $4,000 each pay period could decide to set aside $600 of each paycheck for investing through their 401(k).

That doesn’t work if you’re a freelancer who might make $6,000 one pay period and $3,000 the next. The best option is to invest a percentage of your income.

For example, you could decide to invest 15% of your income. If you make $6,000, then invest $900 of it. If you make $3,000, then invest $450. This way, you’re always investing a reasonable amount commensurate with what you’re making.

2. Stick to passive investments

There are two basic types of investing:

Active: Choosing individual investments yourself. Active investors usually pick stocks in an attempt to beat the market.Passive: Choosing investments that do the work for you. For example, many investment funds will invest your money across a large number of stocks.

Passive investing is the easier and better choice for most investors. Research has found that only about 1% of active investors outperform the S&P 500, which is an index with 500 of the largest publicly traded companies on U.S. stock exchanges.

For freelancers in particular, passive investing is typically a better option. Actively picking investments isn’t just hard work, it’s time-consuming. In all likelihood, you could get a much greater return on your time focusing on your freelance business.

Here are a few of the best passive investment options.

Index funds: These aim to track a specific market index. They generally have low fees and perform well, depending on which type of index fund you pick. S&P 500 and total stock market index funds are both smart choices.Target-date funds: These set up a portfolio for you based on the retirement year you choose. If you know you want to retire in 2055, then you can pick a 2055 target-date fund, and that’s the only investment you need to make.Robo-advisors: These allow you to answer a few questions about your goals and risk tolerance, and then they invest your money for you. Many of the best online stock brokers now offer robo-advisors, which are a great way to put investing on autopilot.

3. Use retirement accounts to save on taxes

Many Americans set money aside for retirement and save on taxes through 401(k) plans. Even though you won’t have access to an employer-sponsored 401(k) as a freelancer, there are still retirement account options available.

One that often makes sense for freelancers and gig workers is a solo 401(k). This is a 401(k) you can open if you’re self-employed with no employees other than your spouse. Contribution limits are high ($67,000 in 2023, plus a $7,500 catch-up contribution if you’re 50 or older), because you’re able to contribute as both employee and employer.

Individual retirement accounts (IRAs) are available to anyone, including freelancers. With a traditional IRA, contributions are tax deductible. There are also Roth IRAs, where you pay regular income taxes on contributions, but withdrawals in retirement are tax-free. The total IRA contribution limit is $6,500 in 2023, plus a $1,000 catch-up contribution if you’re 50 or older.

Another IRA option is a SEP-IRA (Simplified Employee Pension IRA). Self-employed individuals and business owners can set up this type of IRA. It’s easy to manage and has high contribution limits (these vary depending on whether you’re a business owner or self-employed).

LEARN MORE: Retirement Plan Options for the Self-Employed

The most important part of investing as a freelancer is consistency. Even if you don’t have a stable income, you can be consistent about the portion of your income that you invest. If you do that, choose one or more quality passive investments, and take advantage of retirement account options, you’ll be well on your way to building wealth.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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Halloween means buying candy, right? Keep reading to learn how one writer is coping with the extra expense in a unique way. 

Around nine out of 10 of Americans buy candy for Halloween. And among those who partake in this festive holiday, the average household spent $29.51 last year. While that’s not a huge sum of money out of your checking account, it does mean this season comes with added costs.

We tend to get a lot of trick-or-treaters because our neighborhood is known for amazing decorations and generous households who hand out good candy, so I’ve charged much more than that on my credit cards in the past. But in recent years, I accidentally stumbled onto a solution that lets me essentially spend nothing on candy while avoiding waste.

Here’s how we dropped our candy budget

We ended up eliminating our spending on candy entirely by accident. See, we were looking for fun activities to do for our children during halloween and we discovered that a huge number of churches and community organizations hold trunk-or-treat events in the weeks leading up to Halloween.

Most often, these are free events that the organizations invite members of the entire community to in order to interact with the public and promote their group. In some limited cases, you’re asked to bring something like a can of food for donation.

My kids had an absolute blast going trick or treating at the trunk-or-treat events, especially since many places had games and activities for them to do as well as collecting candy. And they also made an absolute haul on the candy they collected — especially at one trunk-or-treat last year. We went at the end of the night, and people just dumped what was left in their bowls into our baskets.

Of course, we don’t want our kids to actually eat all this candy (particularly our young toddler, who has especially discovered a love of trick-or-treating this year), so we had to find something to do with it. Our solution was to hand it out on Halloween to all of the kids that come to our neighborhood.

So in the end, my children get to have the fun of going to these events, and since we end up with way more candy than we can even hand out on the big night, they still get to keep some. And we don’t have to buy even more candy at the store.

How to make your own Halloween candy more affordable

If you want to save on your own candy budget, going to trunk-or-treat events is a great way to do it. This also helps make the holiday a more festive one for kids. Our Halloween season now stretches out for a week or longer as we attend all of these different events, so it’s become a major holiday my kids look forward to every year.

We’ve been easily able to find trunk-or-treat events by checking Facebook as well as local newspapers and community websites to find which places are hosting them. We just make a list of them and have even checked out several in one day. So check your own community to see if you can find them in your area so you can slash your own candy budget while making the Halloween holiday more memorable for your loved ones.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Christy Bieber has no position in any of the stocks mentioned. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.

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The average credit card interest rate is over 24%. Some lawmakers think that’s way too high. Keep reading to learn what they plan to do about it. 

As of October 2023, the average credit card interest rate in the United States is 24.45%, according to LendingTree. To put this into perspective, this means that someone with the average credit card debt of $7,951 is paying credit card interest at a rate of nearly $1,950 per year.

Unlike most consumer interest rates like mortgages and auto loans, credit card interest rates are directly tied to the federal funds rate (when you hear that the “Fed raised rates,” this is what it refers to). With the Fed raising that benchmark rate by more than five percentage points over the past couple of years, it has pushed credit card interest rates higher as well.

With credit card debt in the U.S. exceeding $1 trillion in 2023 for the first time ever, Americans are set to be on the hook for about $245 billion in credit card interest. This is clearly a problem, both from a personal finance perspective as people could find it more difficult to keep up with their credit card bills, and from an economic perspective, as this is billions of dollars that people are handing over to credit card companies instead of spending on goods and services.

New proposals could lower interest rates and fees for everyone

Some lawmakers think credit card interest rates have become too high and are setting working families up for trouble.

For example, Sen. Josh Hawley (R-Missouri) introduced the appropriately named Capping Credit Card Interest Rates Act in September, which would set a maximum credit card APR of 18%, and this would be inclusive of any fees charged to the customer. With many cards charging as much as 30% or more these days, and with no official cap on rates in most cases, this could be welcome relief for borrowers.

Other proposals are targeted at fees, including one from the Consumer Financial Protection Bureau (CFPB), which would cap missed and late payment fees at just $8 or 25% of the minimum payment owed, whichever is lower. Currently, some credit card issuers charge $40 or more for this. And there’s another (bipartisan) bill making its way through the Senate that intends to encourage competition between payment networks like Visa, Mastercard, and others, and reduce the merchant fees that typically get passed to the consumer.

Limiting credit card interest might not be as great as it sounds

To be sure, Hawley’s bill is going to face an uphill battle in both the House and Senate, and quite frankly, it’s unlikely that a proposal to limit credit card interest will pass, at least in the current political landscape.

And while providing consumer relief can be a good idea, it’s also worth noting that a broad cap on credit card interest rates could have unintended consequences.

It’s important to realize that credit card interest rates aren’t higher than other types of debt simply because the banks that issue credit cards are greedy. It is because credit cards are unsecured forms of debt, and historically have higher default rates than other types of consumer debt. It isn’t uncommon for credit card issuers to experience default rates of 5% or more on credit card debt. After accounting for administrative costs and other expenses, you might be surprised that profit margins aren’t as wide as you might think in most cases.

So, a limit on credit card APRs could cause lenders to pump the brakes on approving new credit cards and reduce existing credit lines or close them altogether, especially for customers who don’t have top-tier credit scores. In other words, a rate cap could have the unintended consequence of reducing access to credit for consumers who need it.

Ways you can lower your interest rate now

Credit card interest is certainly a financial burden for millions of Americans, but one key takeaway is that you shouldn’t necessarily count on Congress to lower your credit card interest rates for you.

In fact, there could be some ways you can lower your own credit card interest expense and pay your debt off faster. For one thing, although credit card interest rates have soared, it’s still rather easy to find a 0% intro APR balance transfer offer. Alternatively, many consumers can significantly lower their interest rates by obtaining a personal loan and using that to pay off their credit card debt. Keep in mind that the less interest you pay, the more of your debt repayment is applied toward the principal, and not toward putting money in your bank’s pocket.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard, Target, and Visa. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.

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It’s hard to build savings by 25. But read on to see what target you should be aiming for. 

Saving money is a tough thing to do in general. But when you’re in your 20s, it can be a real challenge.

Some people are fortunate enough to snag a high-paying job right out of college. But many graduates spend a good part of their 20s earning entry-level salaries and struggling with bills. If you’re in that boat, then you may not have that much cash socked away by your 25th birthday.

But just how much savings should you have by 25? Ideally, by then, you should have a solid emergency fund and the start of a nest egg. But if you don’t, that’s okay, too.

Aim for a three-month emergency fund

If you’re 25, you may have modest expenses like a rental you share with a roommate, a cheap car, and so forth. But it’s still important to have a way to pay those bills in the absence of a paycheck, such as if you were to lose your job or be forced to go out on disability due to an injury.

That’s why it’s important to have a three-month emergency fund by age 25. If you have enough cash to cover three months of essential expenses, you may be less likely to resort to credit card debt when an unplanned bill or period of unemployment arises. And you might also be in a strong position to cover a larger expense like a car repair.

Aim for one-third to half a year’s salary in retirement savings

Retirement is a period of life you should try to save for from a young age. The more time you give your savings to grow, the easier it becomes to build up a larger nest egg.

Fidelity says that by age 30, you should optimally have the equivalent of a year’s salary (meaning your salary) in an IRA or 401(k) plan. So by 25, it’s good to aim for somewhere between one-third of a year of pay and one-half.

But remember, even if you start funding an IRA or 401(k) at age 21 or 22 upon graduating college, you’re not so far off from 25. And that means you’re not getting a very large window of time for your money to grow. So don’t get down on yourself if you only have enough of an IRA or 401(k) balance to equal a month or two of your current salary by 25.

A side gig could be your ticket to boosted savings

When you’re in your mid-30s and you’ve worked your way up the ranks within your industry, it may be a lot easier to build savings. But it’s hard to do the same in your early- to mid-20s. If you don’t have a three-month emergency fund or one-third to one-half of a year’s pay in retirement savings, do not beat yourself up. It’s an accomplishment to have savings at all at that point, so pat yourself on the back if your balance isn’t $0.

That said, one way to give your savings (emergency and retirement) a nice boost is to take advantage of the gig economy. You may not have enough experience to get promoted at your main job and snag a higher salary. But if you’re able to supplement your income for a few years by doing things like pet-sitting or driving for a rideshare service, you can use that extra cash to build savings. And then, once your salary picks up, you can dump your side gig if it’s too time-consuming or you’re just plain tired of it.

Many people don’t have any savings at 25. So try not to get too hung up on ideal targets. A better bet is really to just do your best to save as much as you can, and to celebrate small milestones in your savings and retirement accounts along the way.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has positions in Target. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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