Freelance Finance: 13 Personal Finance Tips for Freelancers

Anyone who has been a freelancer for any amount of time will tell you: freelancer finances can be tough. That's why we've gathered some freelance financial planning tips to help you grow your business sustainably.

As a freelancer, you no longer have a regular paycheck that automatically deducts expenses for taxes, health insurance, and retirement savings. You have to take care of all that on your own. 

While understanding all the nuances of these financial requirements can be a challenge at first, it becomes a lot easier once you set yourself up for financial success. 

The right freelance financial planning tips can go a long way

In this article, we’ll walk you through 13 important freelance financial planning tips to build wealth as a creative independent — a few for every stage of your freelance business.

Whether you’ve been freelancing for a while or you’re looking to leap into independent employment, these tips will help you make sure you’re starting from the best possible financial place. 

Create a budget

The number one thing you need for successful financial habits as a freelancer is a budget. 

Your budget should outline the minimum amount of money you need for your living expenses and regular business expenses. This is called the “break-even number.” 

By creating a budget, you’ll know exactly how much work you need to take on in a given month to meet your minimum needs. From there, you can choose how to grow and scale your freelance business. 

Here’s a list of personal expenses your budget should include: 

• Rent or mortgage payments

• Utilities like electricity and internet

• Groceries, toiletries, and other essentials

• Retirement and emergency savings (more on these later)

You’ll also need to consider business expenses. Here are some business expenses you may need to consider as you work as a freelancer: 

• Internet and phone bills, if applicable

• Health insurance

• Taxes

• Subscriptions to required work tools, such as video conferencing or project management software

Your budget may change as your business and personal needs evolve. That’s okay! The goal of a budget is to help you cover all of your expenses. As your expenses change, so too will your budget. 

To make sure your planned budget meets your personal expenses and vice versa, set aside time each week to review and adjust as needed. 

Open a separate business bank account

As you might have noticed in our budgeting tip, it’s helpful to draw a clear distinction between personal and business expenses. 

To help you keep these pieces of your finances as separate as possible, it’s smart to open a new checking account specifically for your business. 

You might qualify for an exclusive business account with some banks, which could offer extra tools that help freelancers and entrepreneurs. If you don’t need those features or don’t meet the requirements, a second personal checking account works fine too. 

Once you have your business bank account, deposit your freelance earnings there first. 

Then, you can pay yourself a salary by moving funds from your business account to your personal one regularly. 

You can also use your business account to pay for health insurance and other business expenses directly. This keeps all your business expenses in one place, making it a lot easier to track your tax deductions. 

Separating your business funds from your personal money also makes it easier to hold onto the money you’ve set aside for taxes. If it’s not in your personal account, it’s not yours to spend. 

Find reliable accounting software

With these two basics under your belt, it’s time to find or create accounting software or a tool that will help you manage your finances regularly. 

Your accounting software must be intuitive and easy to learn and use. You’ll be logging in regularly, so you don’t want it to be more frustrating than finances already are. 

Here are a few other things to consider when looking for accounting software: 

• Does it have all the tools you need? Think about invoicing, scheduling, and payment options. 

• Do you want it to connect to your bank? Some accounting software gives you insight directly into your business checking account. Look for compatibility with your bank if this is important to you. 

• Are they reputable? When trusting a business with your financial information, you want to make sure they’re rated highly on security and customer service to avoid any future problems. 

• Does it fit in your budget? While there are reliable free accounting software options, your preferred tool may come with a monthly fee. Be sure you’ve accounted for this expense in your business budget. 

If you’re savvy with a spreadsheet, you can also build your own accounting tool on Google Sheets or Excel. While this approach allows you to customize the tool to your liking, it could quickly become too large of a file to work with easily. 

Build an emergency fund

As a freelancer, an emergency or rainy day fund is more important than ever for your personal finances. 

Clients ghost you or delay payments for weeks or months. Unfortunately, it happens to every freelancer at some point. 

When that happens, you want to make sure your finances are covered. 

Remember your break-even number from the budget section? Your emergency fund should cover at least three times your break-even number or three months of expenses. 

As you find your financial footing, you can grow your emergency fund to cover six months or even a year of expenses for extra security. 

You don’t need to conjure up an emergency fund all at once. Instead, budget a little bit toward it every month as you get started and work toward building it in the first few months of your freelance business. 

Build your credit

If you’re starting off your freelance career with shaky or bad credit, it’s smart to work on repairing your credit sooner rather than later. 

Because you won’t have an official paycheck to prove that you have a reliable income to landlords or banks, your credit score becomes even more important. It can help you apply for loans to grow your business and provide extra security during slow freelancing months. 

Set reminders for estimated taxes

If you’re a freelancer in the U.S., you need to stay on top of your estimated taxes. 

Because no one is deducting taxes from regular paychecks, you need to make your own payments. 

You’ll also need to account for a higher tax rate, as your employer doesn’t contribute to Social Security, Medicare, or other important taxes. 

A good rule of thumb is to save 25-30% of your earnings toward taxes. 

Estimated taxes are usually due each quarter. In addition to federal estimated tax payments, you’ll also need to pay state estimated taxes. 

To make sure you pay your taxes on time and avoid additional fees and penalties, set reminders on your calendar for each quarterly deadline throughout the year. 

Diversify your client base

This may seem like one of those no-brainer freelance financial planning tips, but client-freelancer relationships can change without notice. 

If you’ve got one major client that drops you, you’ll suddenly find yourself scrambling to make up for that lost income. 

To prevent this kind of situation, it’s important to continually diversify your client base. For example, instead of one client that makes up 80% of your income and a handful of smaller clients at 5% or 10%, it’s better for your financial planning if you have several clients that provide relatively equal percentages. 

That way, if you lose one client, you’re only losing 10-20% of your income — and your emergency fund can make up the difference while you look for new clients.  

Budget for marketing and promotions

When you’re ready to start growing your business, you might want to add a few line items to your budget to help with marketing and promotions. 

Whether you’re advertising your tutoring business or marketing your stellar graphic design skills, you might need to put forth a little time and money to get your business in front of potential new customers. 

Remember to pace yourself. If you’re still flying solo, you may not be able to take on a huge influx of clients all at once, so make sure your marketing efforts align with the new business you’re able to handle. 

Your budget, break-even number, and ongoing review of your finances will help you make this decision. With all the data at your fingertips, you can see exactly how many new clients you can or should take on and how much money you can spend to get them. 

Invest in tools and tech to improve productivity

As you gain more financial success with freelancing, you might find yourself with some extra business cash. If that’s the case, consider investing in tools that will help you work smarter. 

Project management software and business automation tools can help you work more efficiently. And when your efficiency and productivity increase, so does your revenue. 

And, of course, more revenue means more income and more savings. 

Here are a few ideas for productivity-boosting tools: 

• Time tracking software to help determine your hourly earnings

• A task tracker to stay on top of deadlines

• Automation tools to send schedule or deadline reminders to you or to clients

• Email marketing software to make updating your email list easier 

Plan for your financial future

The last one of our freelance financial planning tips is possibly our most important: As you develop and maintain your healthy financial habits for your freelance career, you always need to be planning for your financial future. 

Mostly, this means setting up and contributing to a retirement account. Without an employer to offer this account and possibly set up matching contributions, the burden of retirement falls entirely on you. 

Budget for retirement contributions from your business account. Remember that the earlier you start your retirement account, the more interest it will accrue by the time you’re ready to quit working for good. 

Setting up a retirement account is the bare minimum for future financial planning. Here are a few other things you can do: 

• Increase your retirement savings whenever your budget allows

• Set up investment accounts for your kids to save for their college, travel, or a down payment

• Invest in real estate or the stock market

Be a financially healthy freelancer

Once you grasp the basics of freelancer finances and develop strong financial planning habits, the money side of freelancing becomes a lot less stressful. 

With a strong financial foundation and regular budget check-ins, you’ll be able to grow your freelancing business to new heights — and gain all the freedom that comes