7 Proven Money Management Tips for Freelancers

From dealing with taxes to budgeting to evaluating retirement plans, here are 7 proven money management strategies for freelancers →

Freelancing can be a liberating job experience.

Once you’ve built your business up solid enough, you can write your own hours, work only with the clients of your choosing, or potentially even generate enough business to give another person a job.

There are also a lot of potential financial pitfalls, though. When you jump into freelancing full-time, you’re dropping the steady paycheck, employer-provided benefits and everything that else that comes with being a W-2 employee.

Before you drop everything to start your own venture, be sure to review these essential money management tips for freelancers.

1 – Diversify your income streams.

Rebuild Finances Second Job

While landing one, huge client can feel like you’ve won the lottery, you have to be careful.

If you earn all of your income through one patron, your future could include the loss of all your income in one fell swoop should you and that singular client ever break up.

If your income is diversified, however, losing one client won’t hurt as much. You’ll have a little bit more time to get a new contract lined up before all financial hell breaks loose.

You can also diversify your services. For example, I’m a writer, social media manager, website owner, consultant, brand ambassador and author. Yes, I am a “freelancer,” but my income can come from so many sources beyond just freelance writing alone or my website by itself.

2 – Build a healthy emergency fund.

How to Use Google Sheets to Build Your Emergency Fund

Freelancing is unpredictable.

You might be cashing checks with five digits one month, and then barely pull in enough the next to get by.

That’s why a fat emergency fund is so crucial. Ideally, it will be large enough to get you through twelve months.

Typically it is recommended that an emergency fund be 3-6 months’ worth of expenses, but with all the unpredictability of freelancing you may want to consider this higher benchmark. It will make it a lot easier to smooth over the bumps and seek out new opportunities while you go through dry spells.

If you haven’t built an emergency fund, don’t leave your day job. Yet. Keep saving.

3 – Budget a month ahead of time.

Calm Budget

With freelancing, there’s no steady paycheck unless you set one up for yourself.

The best way to do that is by budgeting at least a month ahead of time.

Read “10 Best Personal Finance Apps

What that means is that you’ll use the money you earn in March to pay your bills in April. Then in April, you’ll work all month to meet May’s expenses, transferring your “paycheck” from savings to checking at the beginning of the month.

You can also set up your business to issue you a paycheck. You’ll want to consult with an accountant and an attorney licensed to practice in your state as you establish an LLC. The LLC can then directly issue you an income complete with W-2.

Which method makes the most sense for you will depend on state small business laws and tax laws, along with the nature of your business and banking setup.

4 – Set aside money for taxes as the checks come in.


Things have always worked out best if I consistently set aside a portion of each check for income taxes as I receive it.

Because of my individual family situation, state taxes and municipal taxes, I find that the number I feel safest with is 30%.

Read more: How to Know if You Need to Pay Quarterly Taxes

Your number may be different. You don’t have to start with the perfect number. The important thing is to establish the habit of storing the money away. You can always adjust the amount as you go.

When quarterly taxes come due, having that money earmarked specifically for the tax man is such a relief. It saves you from scrambling to find cash you may not have access to if you had procrastinated.

Read more: Quarterly Estimated Tax Spreadsheet from Tiller

5 – Know your tax deductions.

tax spreadsheet tiller

Learning the ins and outs of the tax code isn’t a stimulating experience for a lot of people.

But I promise you that if you read it and truly understand it, you’ll have a much easier time planning your business expenses throughout the year to optimize your spend.

For example, if your health insurance policy is the only health insurance policy available to anyone in your household, you can deduct your premiums, lowering the amount of income you’ll have to pay taxes on.

Read more: 3 Tax hacks for Freelancers

6 – Research retirement account options.

401k research for freelancers

When you aren’t a W-2 employee, you’re not going to haven access to employer-sponsored retirement accounts.

It’s okay, though. You can still save for retirement.

In fact, at least one of these IRS-approved plans for the self-employed is likely to look familiar.

Contribute to a 401(k).

Yes! You can still have a 401(k) when you are self-employed.

In fact, the annual contribution limits on 401(k)s for the self-employed are dramatically higher than those you’d get as a W-2 employee. Tens of thousands of dollars higher.

When you put money in a 401(k), you actually get to deduct it from your income on your taxes. The catch is that you’ll have to pay taxes on the back end when you start making withdrawals in retirement.

Explore the simplified employee pension.

Also known as an SEP IRA, a simplified employee pension plan operates in a similar manner to a 401(k)—any money you put in, you can deduct against your income.

Then, when you make withdrawals, you’ll have to pay taxes on those withdrawals.

SEP IRAs allow you to set aside 25% of your annual income up to $56,000 at the time of this writing. This limit is extremely high compared to plans offered to many W-2 workers.

You do have to be careful that you don’t contribute more than 25% of your income, though, and this can be a little bit of a balancing act when your income is variable. Make sure to remind your accountant about this account every year to ensure it’s reconciled against your actual earned income rather than those projections you concocted back in the goal-setting excitement of the New Year.

Learn about Savings Incentive Match Plans for Employees

These plans, also known as SIMPLE IRAs, allow you to stash away 100% of your income from self-employment, but only up to $13,000 or the total amount you earned throughout the past year—whichever is less.

So while you can contribute a larger portion of your income, the total dollar cap is lower than with a 401(k) or SEP IRA. You can, however, add a 2% or 3% match on top of the $13,000.

7 – Set realistic income goals and chill.

Small Biz

Being self-employed is stressful.

If you’re working from a place of real or imagined scarcity, it’s easy to become a workaholic.

But workaholism is bad for your business. The more energy we exert, the more our cognition starts to deteriorate. The more true breaks we have in our days, the more creatively we solve problems.

Instead of getting hooked on workaholism, set an “enough” number for yourself. This should be a number you think you can realistically hit this month, and it should be one that more than covers your expenses and savings goals for this 30-day period. If you hit that number, stop. Take some time to rest and recoup and dream all the daydreams that will turn into the goals and achievements of tomorrow.

But be sure to cut yourself that break, and have a hard “enough” number. Otherwise, you risk stressing yourself out, which can hamper your bottom line.

Brynne Conroy

Brynne Conroy

Motivation for women in business & on the homefront. Smart money management for success & true wealth. Author of The Feminist Financial Handbook.

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