3 Money Management Tips for Freelancers

The beauty of being a freelancer is getting to set your own hours and be your own boss. The downside, though, is giving up the stability that comes with being a salaried worker. In fact, many freelancers struggle to manage their money because they see huge fluctuations in income from one month to the next. If you’re having a hard time overseeing your finances, here are a few tips that’ll help.

1. Have a budget

It’s important for everyone to have a budget, but this especially holds true for freelancers. When you’re dealing with a variable income, you need a full picture of what your bills look like, where you have flexibility, and where you don’t. So if you’re not following a budget already, carve out some time to create one immediately.


You can start by listing your recurring monthly expenses, and then factor in one-time expenses, like that annual insurance premium or certification fee you’re required to pay. Next, take your lowest month of earnings over the past year and make sure that amount is enough to cover your fixed expenses, which are those without wiggle room (think your rent payment, car payment, and so forth). That figure should also be enough to cover the low end of what your variable expenses might run you. For example, if you spend an average of $500 a month on food, you don’t necessarily need to spend that much during a month when your income dips. But you do need to spend something, so figure out what that minimum is and factor it in.

In a nutshell, your budget should be set up in a manner that allows you to cover all of your expenses on the lowest monthly income you think you’ll take in — so if it doesn’t currently, adjust those expenses, whether it means canceling cable or downsizing. This way, if you do have months where you’re earning less, you’ll manage to cover your bills without having to dip into savings. And during the months you earn more, you’ll have the flexibility to spend extra on luxuries or bank some additional cash.

2. Build a solid emergency fund

Unforeseen expenses can happen to any of us, but as a freelancer, you’re even more likely to suffer a financial blow in the form of a lost client or sudden drop in earnings. That’s why it’s crucial to have a strong level of emergency savings. For most people, a solid emergency fund is one with enough money to cover three to six months’ worth of living expenses. But when your income is variable and by no means guaranteed, you’re better off hitting the high end of that range, if not more.

To build that fund, capitalize on the months when business is booming by sticking the extra money you earn into the bank. You might also consider cutting expenses, even temporarily, if your cash reserves are particularly low. The last thing you want to do as a freelancer is leave yourself vulnerable in the face of an unplanned bill, so do what it takes to establish that safety net.

3. Pay attention to taxes

The challenge of being a freelancer is having to calculate your own tax bill — something salaried workers usually don’t have to do. You’re responsible for paying your estimated taxes quarterly, but doing so can be particularly challenging when you’re first starting out and don’t have a benchmark to reference.

To start figuring your tax bill, tally up your earnings each quarter to see what tax bracket you’re likely to fall into, and calculate your bill based on its associated rate. Keep in mind that you’re allowed to deduct legitimate business expenses to reduce your taxable income, so if, for example, you have a quarter in which you earn $30,000 but also rack up $3,000 in business expenses, you only need to pay taxes on $27,000 of that $30,000 in income.

You’ll also need to pay self-employment taxes as a freelancer, which will involve some number-crunching as well. Self-employment taxes cover Social Security and Medicare, and for the former, you’re going to pay 12.4% on your first $128,400 of income this year. (Keep in mind that this threshold changes year after year.) For Medicare, you’ll pay 2.9% of your total income. If all of that sounds like a lot, keep in mind that you’re allowed to deduct half of your self-employment taxes when you file your return.

Finally, if your state has an income tax, don’t forget to pay that bill quarterly as well. Your total will depend on your earnings level and your state’s specific tax rates.

There’s no question about it: Managing your money as a freelancer is no easy feat. It is, however, a small price to pay for the freedom that comes with calling your own shots.

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