Buying a house and saving for retirement while freelancing

[carolinap]

First time posting and already asking for help, but i wasn't able to find posts on this subject in this forum...

I'm a full time freelancer for a year now, and things are going ok, now i have enough money to pay all bills and some extra. Already have money for 3 months expenses in the bank, and i pay rent. So now i'm thinking about buying an apartment (saving for a down payment and researching prices) and saving for retirement (wasn't able to contribute since last year, when i was employed).

But i fear to put my money somewhere that i can't reach easily if my freelancing gig goes bad, for a short or long period. At the same time i know that i'm missing investment opportunities leaving my money on the bank.

I'm also not sure how to coordinate money that i want to save to not have to use credit card for bigger expenses, and money that i want to save long term, considering my non-constant income, while trying to save for retirement and housing. It's important to say that I don't plan to go to a job with regular payment anytime soon.

Would love to hear if there are other mustachians on this forum with similar experiences and how they work it out!

[NoStacheOhio]

Having a bigger buffer makes sense for freelancers, but have you considered sweeping any money in your savings over $x to a taxable investment account? Where $x is whatever amount you feel you need to have in cash to meet expenses.

[FrugalFan]

I agree with the previous poster that a larger buffer might make sense if you earn freelance income. I would aim for between 3 months of total expenses or 6 months of basic expense (just the important stuff, no fun or entertainment money). For the rest, you just need to do what you are comfortable with. We set aside a bit each month for major expected future expenses and the rest goes into retirement savings. You would just add a house downpayment category (run some rent vs buy calculators to make sure buying actually makes more sense). House downpayment and other savings should probably go into high interest savings accounts and invest the rest. If you invest some of your money in a taxable account, it is still accessible to you should you really need it.

[Rubic]

With the uncertainty of freelance income, you should carefully consider tying up your income in a mortgage note, at least until you've had some time to adjust to the variations of freelance cashflow versus a regular paycheck.

In my first self-employment gig, I avoided buying a house for 10 years because I didn't want a mortgage expense influencing my business decisions.  I contributed both to a SEP and a taxable investment portfolio.  The latter as an emergency fund if the business ever bled red.  Fortunately, I never had to tap into my savings, but even with a fairly reliable income stream, it was a relief not to worry about monthly cash flow (*).

Some may argue that, well, I had to pay rent anyway, but rent expenses can be adjusted in a variety of ways, e.g. roommates, moving to cheaper digs, etc.

* However, lest anyone think I was exceptionally astute, I also bought a new car on credit during this time.  This poor financial decision was only mitigated slightly in that I could claim it as a business expense.

[carolinap]

NoStacheOhio and Travelling Biologist, maybe you are right, there are options where the money is still accessible in case of emergencies. And probably there's no absolutely best formula of how much should i save in each category.

rubic, I feel you, and there's why i was thinking about saving for a big down payment while paying rent (even if i'm not sure if it's the best option financialy?). If things go bad, rent is the biggest expense i have, and i can easily go living with friends or parents. In the same way, i don't know if I'm losing too much money just to feel safe.

[AZDude]

There are relatively safe investments that make far more than the 0.01% interest in a savings account. You can usually access this money within a week of needing it. If you want to be super-conservative, then keep six months expenses in a savings account. Anything more than that and you are just throwing money at your bank yelling "PLEASE TAKE IT!". Realistically, even for a freelancer, three months should be fine. I imagine your work would see a gradual downshift rather than just losing everything all at once like someone getting laid off. So you should have plenty of time to make plan in the worst case.