freelancer counting money

5 Personal Finance Tips for Freelancers to Make Money Management Simple

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Transitioning to a career in freelance means a lot of things will change. Among them is the freedom to set your hours and choose your clients.  But deciding to pursue a freelance career also means the tasks you formerly left to HR and payroll now fall on your plate. These items may include understanding taxes, creating your paycheck, and deciding when to invest in your business.

If you’ve blissfully been living paycheck to paycheck throughout your career, then having to make personal financial decisions may terrify you. Trust me when I say it can be a scary place if you’re not informed. But if you’re willing to learn, these personal finance tips for freelancers can ease the uncertainty that comes with taking on money management responsibilities.

Top 5 Personal Finance Tips for Freelancers

Get organized

I’m talking hyper/super/insanely organized.  Failure to do so is only going to result in frustration, and possibly loss of money, later.  Organization is going to be your best friend when it comes time to figure out how much you’ve made and from what sources.  The first few things I did to get organized were:

  1. Create my business LLC to keep personal and business projects separate
  2. Set up a business bank account to send all earnings
  3. Start tracking everything on spreadsheets and organizing freelance-related files on Google Drive

I keep spreadsheets for:

  • Expenses – This includes every software platform I sign up for to help with my work (Grammarly*, Adobe, Browserstack, Microsoft Office) and other costs such as those for my home office.  I’ll take this spreadsheet to my tax professional next year for help with filing taxes.
  • Tax withholding– I take the total amount I’ve earned from all areas in a given month, track how much I am setting aside for taxes, and how much I’m transferring to my personal bank account (aka my paycheck).  This helps me understand how much to keep in my account next month after adding in new earnings.
  • Earnings – When I started, I kept every project I completed in a spreadsheet. But the more work I have, the more of a burden this has become.  Since Upwork, Fiverr*, and other platforms have reporting tools that make it easy for me to understanding earnings per client, I’ve transitioned to relying on these instead.

Plan for taxes

When you have a job where you receive a W-2, taxes are automatically taken out before you receive your net pay.  As a freelancer, you’re going to have to set aside this money to make sure you can cover taxes yourself either quarterly or annually.  It’s best to consult a tax professional to understand how much to set aside and how to file your taxes as a freelancer.

I generally set aside 40% of my earnings to be on the safe side. I do this because I’d much rather receive an unexpected payday come April because I saved too much rather than have to scrounge up enough money to pay the government what I owe.

Keep a hefty savings account and emergency fund

Maintaining a stash in case of emergencies is even more critical with a volatile career like freelance.  I can barely predict my income week to week, let alone confirm if I’ll have steady clients next month.  It’s essential to keep both an emergency fund for anything unexpected that pops up, and a hefty savings account to serve as your rainy day fund for those cloudy months when freelance isn’t as consistent.

For example, you may figure out that as a content writer, clients lose their appetite for your services around the end of the year, but then bombard you with new projects come January.  This means you’ll need to save a bit more early in the year to make sure you have savings set aside to get you through November and December.

Set aside money and time for career development

When I worked in software, I often spoke with managers and co-workers about career development.  This comes in many forms, including continuing education, taking on new responsibilities, or attending a conference.  As a freelancer, you’re in charge of your personal development and are responsible for deciding what that means and what you’ll pursue.

Career development is an investment in you, and it should be something you prioritize and set aside money to support monthly.  (Granted, this might not be something you focus on until you’ve spent a year or so establishing your client base and business.)  But eventually, you’ll want to explore the possibility of taking an online class to build a new skillset or splurging to attend the web design conference you’ve been dreaming about.

The one thing I know for sure is that investing in yourself and your skills is going to pay dividends throughout your career.

Have a plan B, C, and D

When you have stable full-time employment, you may not have any kind of back-up plan in place for if you lose your job besides a dusty resume in the corner.  But when you’re freelancing and nothing is certain, it’s best to have one, if not several, back-up plans.  This doesn’t just mean having your resume together; it also means laying out tangible next steps.

  • Plan B could be adding another offering to your freelance portfolio. If you currently do content writing, you might look at adding proofreading to expand your potential client base.
  • Plan C might look like picking up shifts at the local bar or coffee shop or babysitting for the kids down the street for extra cash while things shake out.
  • Plan D, your last resort, might be returning to full-time employment if you previously worked in an industry you enjoyed.  To keep this plan in play, make an effort to continue to network with former co-workers and others in that industry to leave the door open in a sense. 

It doesn’t matter what your back-up plans are, just that you have them and can put them in play if needed to make sure you can continue to support yourself in the future.

I hope these tips have helped to form a picture of some of the major elements of personal finance as a freelancer.  Is there something else that you’ve done to prepare or anything you’ve learned after spending time in this field?  Tell me about it in the comments!

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