What Every Freelancer Needs to Know About Planning Ahead
What Every Freelancer Needs to Know About Planning Ahead

What Every Freelancer Needs to Know About Planning Ahead

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Save more, spend smarter, and make your money go further

No matter how on top of your money game you are as a freelancer, you’re bound to let a few things fall by the wayside. Between meeting project deadlines and hustling for new gigs, some of the “musts” on your ever-growing “to-do” list may have turned into “Whoops. What happened?”

As we’re settling into the end of the year, it’s a great time to spend some time reflecting about what you could’ve done better with managing your finances. And more important, how you can better prepare for the year ahead.

Here are some pointers on how freelancers can boost their money management game and get a jump for the new year:

Pay Yourself a Monthly Salary

A major dilemma of being self-employed is that while your income can fluctuate from month to month, your expenses don’t. Even if you’re a sole proprietor and don’t need to set up a separate small business bank account, treat yourself like an employee by setting up two bank accounts, recommends Ben Henry-Moreland, a CFP® and founder of Freelance Financial Planning. One is for personal expenses, while the second is for business income and expenses. Next, set up a “recurring” paycheck from your business account to your personal account.

“It’s much easier to stick to a budget when you know what is coming into your bank account each month,” says Henry-Moreland. “This system insulates you from the mental highs and lows that happen with corresponding high and low work periods.”

Solopreneurs know how tough-going budgeting on inconsistent income is, and “paying yourself” the same amount each month really helps you stay on top of your bills. I personally set up an auto transfer of a set amount on the 25th of each month.

Build in a Cash Cushion

While everyone should have an emergency fund to cover unexpected expenses such as urgent dental work or a major car repair, freelancers particularly need one when contracts fall through, or clients fail to pay on time—or not at all, explains Henry-Moreland. And because many of us have work that is seasonal in nature, you’ll need to have a cash cushion to tide you over those inevitable seasonal lulls.

For Henry-Moreland, who is a professional singer, he’s learned to stockpile his earnings in November and December to get him through the lean times in January and late summer. I personally don’t have work lulls based on season, but there have been times when a client’s content strategy has changed, or they’re waiting on approval from a higher-up, and there’s a gap in work.

“Every freelancer’s situation is different, but target a specific amount of cash to keep on hand, and keep it in a separate savings account until you need it,” says Henry-Moreland. “And when it gets below the target, you should prioritize building it back up again.” This might mean living below your means for a period of time, putting off other savings goals, or committing to putting any additional income toward your emergency fund first.

Get Ahead One Month

Let’s say you have a handful of different clients that pay you varying amounts at different times of the month. It’s super hard to pay yourself a monthly salary, right? If that’s the case, try to get ahead one month. So by the end of November, you’ll have enough to cover your living expenses for all of December. It seems like a tall order, but the joy of it is that you technically have to save one month’s worth of expenses to get this going.

How to go about it? First, set up a separate savings account for your “get ahead” fund. Then, squirrel away “extra money.” Maybe you had an awesome month workwise or received cash for your birthday or over the holidays. And if you have retainer clients that pay you weekly, there are a few months of the year with five Fridays. Aim to save part of that “extra paycheck.

Look Into a Health Savings Account

If you have a high-deductible health plan (HDHP), you can contribute to a Health Savings Account (HSA). This can be used toward the deductible on your health care plan, and toward qualified expenses. This may include expenses not covered by your health plan, such as dental and vision.

While I wasn’t able to contribute to an HSA this year because I had a health plan that didn’t qualify, I surely miss it. That’s because it provides a handful of great tax advantages. You can contribute to an HSA with pre-tax dollars, any after-tax contributions you make are tax-deductible, and funds in an HSA earn interest tax-free. Plus, unused funds roll over to the next year.

Unlike a Flexible Spending Account (FSA), there’s no deadline to use funds in your HSA account. Plus, some HSA accounts give you the option of contributing to a self-directed brokerage account, where you can put your contributions toward stocks, mutual funds, or commission-free ETFs.

Save for Taxes

Paying Uncle Sam certainly have a way of creeping up on you. The key is to have a separate bank account where you send a percentage of each payment you receive, recommends Henry-Moreland. “The percentage to withhold depends on the person,” says Henry Moreland. Your tax rate increases as incomes get higher, and different states and cities have different rates of their own. It also depends on your business expenses, industry and expertise, location, and other factors such as dependents, tax breaks, and tax credits.

“Many freelancers set aside 20, 25, or 30 percent of each dollar that comes in for taxes,” says Henry-Moreland. “Keep this in mind when setting your rates, or planning your budget. Part of your paycheck belongs to the government, and they will notice if you don’t pay.”

Stay on Top of Your 1099 Game

Make sure you get your 1099s from all your clients, reminds Shane Mason, a CPA/PFS and CFP® who specializes in tax preparation and is the founder of Brooklyn Fi, a financial planning services firm for creative professionals. You’ll need a 1099 from every client where you’re an independent contractor, and not on the payroll (think W-9, not W-4 forms).

While your clients generally are required to send you a copy of your 1099 by January 31, 2019, there’s no harm in checking in to make sure one is on the way. And in the case you don’t receive a 1099 from an employer, you still need to report your earnings.

You actually don’t need a 1099 to report your earnings. If you haven’t received one from a client, or misplaced the copy sent to you, you can pull what’s called a Wage and Income Transcript from the IRS, explains Mason. This shows all the data the IRS receives from your W-9 and 1099 forms, and your IRA contribution information. Just be prepared to jump through a few identity verification hoops, says Mason.

Make It Easy to Track Expenses

While it’s best practice to keep your personal and business-related expenses separate, if you’re a sole proprietor you’re not required to do so. If your personal and business expenses are mixed, use a money management app or QuickBooks Self-Employed where you can see all your transactions in one place. (It’s even better if you can label your transactions “personal” or “business.” Trust us, it’ll make things a zillion times easier.

And in the rare case of a tax audit, make sure you hold on to all your receipts for business-related expenses. Your credit card statements won’t do any good. Mason recommends storing them in a fireproof box for safekeeping.

Review Your Insurance Needs

When you work for yourself you’ll need to make sure your insurance needs as a freelancer are covered. The end of the year is a great time to review your policies and see if they are still a good fit for your lifestyle and situation. During the Open Enrollment Period for health insurance, which for 2019 is from November 1, 2018 through December 15, 2018, you’ll want to look over your policy and change to another plan as necessary. It’s also a good time to review your disability and life insurance policies.

Staying on top of your money game as a freelancer is certainly a tall order. But with a bit of foresight and preparation, and focusing on getting your financial ducks in a row now, you’ll have a far easier time managing your money matters.


The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or view of Intuit Inc, Mint or any affiliated organization. This blog post does not constitute, and should not be considered a substitute for legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

Save more, spend smarter, and make your money go further

Jackie Lam
Jackie Lam

Written by Jackie Lam

Jackie Lam is a personal finance writer. Her work has appeared in Investopedia, Magnify Money and The Bold Italic, and she’s been featured in Money, Kiplinger, Forbes and Woman’s Day. She runs heyfreelancer.com, a blog to help freelancers and artists with their money, and to balance their passion projects and careers. More from Jackie Lam