5 tips for taking control

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  • Understanding your expenses for up to a year will help you determine how much to earn at least.
  • Separating your personal and business finances will make things easier during tax season.
  • Be sure to take the initiative to save for your own retirement.
  • Read more stories from Personal Finance Insider.

Freelancing can be liberating. You can make your own schedule and seize opportunities as you see fit. However, this also means that your income stream is entirely in your hands and can be difficult to predict. Projects often take longer than expected to complete. Payments can take weeks or months, even if you’ve sent an invoice on time.

With that in mind, effectively managing your money — including saving for retirement or other financial goals — can seem like a daunting task. After all, the first step in creating a budget is knowing how much is going to come in each month. Regular employment provides consistent income, making it easy to see how much you’re investing in retirement or health insurance and to budget around those numbers.

Although it may be more difficult, creating a budget as a freelancer is extremely important if you want to achieve your long-term financial goals.

“Freelancers need to be extra careful with their money because they have two monetary systems: their personal and business expenses,” says Brie Sodano, personal financial expert and founder of From. From sheep to shark, a women-focused financial advisory firm. “If you don’t take control, money can bleed from either.”

5 money management tips for freelancers

We spoke to two financial experts to find out their top budgeting methods and


money management

tips for freelancers, from how to set a monthly budget to planning for emergencies.

1. Understand your income and expenses over a year

“When income is inconsistent, pay attention to what’s consistent…your bills!” says Raquel Curtis, a personal finance expert who hosts the money-focused podcast Living Boujee & Balanced.

Assess all your bills and do your best to forecast your monthly, quarterly, and even annual expenses, including how much you’d like to save. That way, you’re not caught off guard when a big annual expense like your


car insurance

payout strokes. Don’t forget to account for business expenses, such as if you want to start paying for your own health insurance and your own taxes, but list them separately from your personal expenses so you can see business expenses versus personal expenses.

From there, you can work out the minimum amount of base income you’ll need to keep everything going. Once you do this, you will know that you can always meet your necessary expenses during off-peak seasons. It’s a kind of reframing of the traditional approach to budgeting, working backwards by looking at expenses to see how much you need to earn.

“Most people use this formula for budgeting: Income minus expenses, savings, and spending money equals what you have left to enjoy,” Curtis says. “However, as a freelancer, you need to modify your budgeting formula – first determine your expected expenses and savings, then find enough work to cover your costs for the month. This will allow you to set a target income and to help you price your services in a way that covers your expenses.”

2. Separate your professional and personal money

Now that you’ve become a business owner in a sense, it’s time to start acting like one financially. After all, a small business would hopefully not just let the money float around aimlessly. To manage and track your money, open bank accounts just for your business.

“It helps to have business bank accounts, makes it easier to track deductible business expenses, and avoid complicated calculations,” Sodano says. It will also make tax season a little easier for you.

As for the account itself, look for a high-yield savings account to earn at least some interest at the same time. To help you see clearly how much you earn and so it doesn’t get lost in your personal account, it’s worth putting all your earnings into the business account and paying yourself as if you were your own employee.

3. Prepare seriously for taxes

If left unprepared, tax season for the self-employed can be a nightmare. It’s essential to keep in mind that corporate taxes work differently compared to workers whose taxes are automatically deducted from their pay every pay period.

In other words, you have to do it yourself so you don’t get terrified as tax season approaches. Curtis says it helps to use one of those aforementioned business bank accounts for the dreaded tax season by setting aside 15% to 30% of your income. Also tax deductions applicable to you.

4. Create a buffer for emergencies

As we all know, life is full of unpredictable and costly situations like unexpected medical bills. It’s important to be prepared with an emergency fund so you can still pay for your regular expenses, Sodano says.

For freelancers, it’s a good idea to focus on building up a reserve buffer of a month or two of income, Sodano says. To determine how much to save, consider your necessary monthly expenses. This way, you’ll be prepared if there’s a really slow month where you can’t meet your minimum spend.

5. Don’t forget to save for retirement

One of the biggest transitions to freelance work from a regular job is the loss of retirement benefits, such as a company-matched 401(k) plan. Building long-term wealth is essential to long-term self-employment, and you need to take proactive steps to plan for your retirement.

To determine the best retirement account for you and your money, Sodano recommends consulting a financial advisor.

“They can recommend the best account for you based on how much you can save, what tax benefits are best for you, and if any loan features are needed,” she says. They will also be able to recommend investments to put into the account based on your goals and risk tolerance.

You might consider opening a Solo 401(k) if you don’t have any employees. You can opt for a traditional 401(k)—funded with pre-tax dollars with income and distributions subject to income tax—or a Roth 401(k)—which is taxed at the start, making tax-exempt income and distributions. If you can, set up savings to be automatic so you don’t even have to think about transferring money.

For business owners with employees, Curtis also recommends considering a simplified employee pension scheme (SEP), which allows tax deductions for contributions made to a SEP IRA. Another advantage of a SEP IRA is that the contribution limits are annual and higher than your average IRA and 401(k).

“These two accounts allow you to build long-term wealth and have money set aside for your golden years!” Curtis said.

put it all together

Ultimately, the freedom and uncertainty of being a freelancer – which is both exciting and scary – also extends to your financial life. Since your future is really in your hands, in some ways having a budget may even be more important than having a paid job.

“Self-employment is a great way to earn more money and have more flexibility than in a regular job,” Sodano says. “Having your own business is incredibly liberating once you’ve worked out the financial systems!”

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