Managing Your Finances as a Freelancer

How freelancers can manage their finances For starters.

Managing Your Finances as a Freelancer

How freelancers can manage their finances.

Setting Competitive Rates...

• The first thing you’ll need to decide is how much you’ll charge for your work. Figure out what your desired annual income is.

• Then, do some research on the market to get a general idea of what others charge to ensure you’re not grossly underselling yourself.

• Next, estimate how many hours per year you’ll be working. Remember to factor in vacation time and sick days, and decide if you’ll work weekends. Once you have an estimate of how many hours per year you’ll work, factor in the cost of doing business.

• This could include any supplies or bills necessary to do your job. After this, you should be able to calculate an hourly rate.

Tracking Your Income...

• You’ll likely have multiple invoices from various clients, so it’s important to keep everything organized.

• Don’t rely on memory—if you overstate your income, you’ve overpaid in taxes, and if you understate your income, the IRS will likely charge you penalties.

• Likewise, don’t wait for 1099 forms to come in from your clients—often times the number on 1099 is wrong, and you’ll have no way of knowing unless you’ve kept track of income yourself.

Managing Your Finances as a Freelancer

Separating Your Accounts...

When it comes time to review your budget or pay taxes, you’ll find it so much easier to determine which expenses are business-related and which are personal if they are in separate accounts. Consider the following structure:

Business Checking...

This is your business account for client payments and business expenses. Charge anything necessary for doing business to this account.

Business Savings...

This is a place to put aside money for quarterly taxes. Separating these funds will give you a better idea of how much money your business actually has.

Personal Checking...

This is your regular checking account for any personal expenses.

Personal Savings...

This is your emergency fund, which should be considerably larger as a freelancer since income fluctuates. Don’t touch this unless there’s a true emergency.

Managing Your Finances as a Freelancer

Health Insurance...

• Getting proper health insurance is one of the most important considerations for freelancers as most employers do not offer coverage for these types of employees.

• It’s especially important to find a good plan because if you become sick, you’ll likely not be earning any income until you’re well enough to work again.

Saving For Retirement...

• Having a retirement plan is an important and essential part of financial health.

• As a freelancer, you won’t have access to 401(k) matching from your employer, but there are still other great options to consider.

• Contributing 15% of your after-tax earnings is a good place to start, but consult your financial advisor if you’re unsure.

Defined Benefit Plan...

• A defined benefit plan is best for those with no employees who want to save aggressively for retirement.

• Contributions are tax-deductible and taxed as income in retirement. Limits for contributions are calculated based on the benefits you want to receive in retirement, your age, and the expected investment return.

• The downside is that they’re expensive with high setup and annual fees. The upside is that you can contribute anywhere from $50,000–$80,000 annually.

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