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Freelancers Talk Money Management (Because None of Us Learned This $h*t in High School)

Rebecca Nash
October 5, 2022

*I’m in no way, shape, or form a financial advisor. This is not financial advice—just a collection of opinions and experiences from freelancers on the topic of cash, with my personal experience added.

*Additional caveat: Sorry to my freelancer friends outside of the U.S.—though an expat myself, I have zero knowledge of other countries' financial institutions. I think there is still plenty to glean from this article, but these insights will be most relevant to those in the United States.

I started freelancing back in 2013 when Elance was a thing. My life and business partner, Brooklin, and I had just graduated college with $80k in debt (#millennial), and he was getting his Masters degree in Tel Aviv. Because more loans = more human capital = social mobility, right? 🤔

To pay for all that hummus, iced coffee and shakshuka, we needed some $$.

As 21-year-old Americans with “highly in-demand” sociology degrees, our primary skills were: research, organization, and writing. 

With these skills in mind, we Google’d “how to work online”—and our freelancing career began. 

Bada bing, bada boom. 

We quickly learned that, compared to W-2 earners, freelancers have a much different set of money motivations and management decisions to make.

Today, we’re sharing some top-tier money management tips for freelancers—but not entirely from us. 

It’s hard to write a genuinely helpful article on money management for freelancers because nobody’s in the same position. So for one of the most nuanced topics (🤑), where did we go for the best advice? The least nuanced space, of course: Twitter.

Before we go to Twitter: Can we attempt to have a framework? 

I’m an ops-type of gal. I like frameworks.

I don’t really know if this counts as a framework, but I want to at least acknowledge that objectives and stages matter here. Bear with me.

Making $5k extra a year with freelancing as a side hustle might be a huge win for one person, while another person looking to start their freelancing career full-time will need more income and strategy to make it sustainable long-term. 

When thinking about your objectives, it’s essential to evaluate the emotional drivers guiding your specific money goals. As logical and grounded as we want our money knowledge to seem, money decisions (at the individual level) are driven by circumstance and emotions. (Not saying it’s fun… but I’m an advocate of digging into that mumbo jumbo more than any spreadsheet.)

Yes, you might want a six-figure year, but why

Do you want to feel extra secure, to experience more enjoyment, to feel “good enough” or to prove your self-sufficiency? You see where I’m going with this? 

Everybody’s objectives are different, so take in the money tweets through the lens of your own motivations and life stage.

For us, the stages of our path have looked something like:

My intention in showing our stages from freelancer to business owner is not to say, “If I can get here, anyone can, hurrah!” I’m very aware of my luck and cushy spot in our societal structures as a white, mostly healthy American. 

My goal is to establish a no-shame environment before jumping into tweets. We are all works in progress. We all are learning. We all have different money histories and objectives for freelancing. 

And we all make a frick ton of mistakes. 

(Like, did you take a financial literacy class in high school? I sure didn’t.)

One thing I wish I had earlier in my career were insights from other freelancers who lived and worked in similar ways as me. I wish we had all talked more about something we tend to hide: what’s going on in our bank accounts.

This is why in May, we put out a simple question to the Twittersphere:

The responses were genuinely helpful (because the freelancing community is just the best). We’ve organized them here to correspond with the framework: 101 being the early, “Oh Sh*t I’m Freelancing!” stage, up to 303, the “All Grown Up with a CPA” stage.

But first things first:

Ready? It’s time for a big mindset shift

Hey, small business owner, you. 👋 

I see you. I’m proud of you. You should be proud of you, too. Being a small business owner is no small feat, and it calls for a substantial mindset shift. 

#1 You are a small business

It’s easy to downplay your work by saying you do a little writing on the side, or you’re just an editor on contract. But you ARE a small business no matter how new or how small it might be—it’s an incredible accomplishment.

This new title also comes with great responsibility. It means you have to start treating yourself like the business that you are. Founder and Wealth Advisor Larry Sprung said, “I’m not a freelancer… but we like to remind the ‘freelance’ clients that we serve to treat their work like a business from the start. You never know when things will take off and you want to be prepared.”

Perhaps the best way to prepare (and one of the greatest gifts you can give your future business-owner-self) is to put your sales and marketing hat on right away. 

#2 You are a salesperson

You have two new best friends and their names are LinkedIn and Twitter. 

I’m not going to pretend to be an expert on social selling, ok? (Go follow our friends Nick and Morgan at Alignd for daily tips on that.) But I’ll share a simple playbook to get the networking-and-connecting started.

Take 20-30 minutes each day to do the following:

1. Identify 10+ influencers in your niche and leave comments on their posts.

By doing this, you’re associating yourself with their brand, accessing their network, and positioning yourself as an expert on the same topic.

Pro tip: Save their profiles in a bookmark folder so that you can easily run through the list and leave comments where relevant, daily.

2. Connect and send a thoughtful message to folks in your space.

You’ve already done the work of identifying your ideal target audience, finding the influencers who speak to that audience, and joining the conversation. Now take it a step further by connecting and starting a conversation in the DMs. 

(But for the love of all people everywhere, don’t pitch.)

3. Bonus points: Share your own post!

If you’ve followed steps #1 and #2, the conversations you’re already having are just the fodder you need for your own posts. 

Robert Wilkins, Owner of Carolina Web Design, said it best, “The time to market your business is not when you’re starving for work. During those times, you don’t have the funds to clearly strategize and invest. You’re in panic mode…

Don't stop marketing your business when you're busy. That's the best time to invest in your future.”

Stage 101: Oh $hit, how are we going to eat?

Mindset talk—check. ✅ Now let’s get tactical. 

The challenge most freelancers face starting out is getting “enough” income, and then managing those finances so that they can focus on the work itself. 

We’re not offering a magical solution for those initial challenges—but we can start by sharing our experiences and the tips that made our lives a bit easier. 

It all starts with a contract

Contracts are table stakes. They protect you and your client and set proper expectations. But it doesn’t have to be complicated.

We lay out our:

  • scope (say no to scope creep, kids)
  • deliverables the client can expect
  • timeline of delivery
  • pricing
  • basic terms (like when payment is due)
  • when we’ll suspend work because of delayed payment, which is considered a breach of contract (learned that one the hard way)

We use Bonsai, but there’s some great free templates like this one from PandaDoc that you can use as a starting point.

Set up a payment and invoicing strategy 

Getting paid can be a real challenge with some clients, and there’s a lot of differing opinions out there on how to set up payment terms. 

Charlie Clark, ex-freelancer and current agency owner says, “Bill up front for your work with 10 day payment terms. Even if they’re late it will still help your cash flow more than billing at the end of month.”

Personally, we don’t invoice our clients at Beam until the work is complete and delivered. Most of our clients have Net 30 terms—however, if a client requests Net 45 or Net 60, we honor their processes.

Asking other freelancers in your network can help you determine what the norms for your industry are, and experience will help you determine what works best for your business. Then, you can find payment and invoicing systems that fit your needs:

  • Wave is popular for its free option and good accounting capabilities. 
  • Square Invoices is a simple system if you’re only looking for invoicing capabilities.
  • Freshbooks offers sophisticated invoicing and accounting capabilities for business owners and freelancers. This is what we used until our needs as an agency grew and we switched to Quickbooks.

Whatever you do, don’t forget about the folks behind the scenes. Mira Crisp, Creative Director at Get Crisp, says: “Befriend accounts payable. Literally know their names and bring them flowers and chocolate.” 

Need I say more?

Time to talk rates (when you’re first starting out)

“Charge more!”  

You’ll hear us say it all day, every day. But there’s more nuance to it in the beginning—imagine that. 

Our path looked like this:

  1. Do a lot of work. (Like, a lot.)
  2. Figure out what you like. (And improve your craft.)
  3. Charge a lot more for less work. (Don’t do what you don’t like). 
  4. Adjust to whatever level of work you want. (Define your success.)

In stage 101, we were doing a lot of work, figuring out what we liked, and improving our craft. But no matter what stage you’re at, it’s never the right stage to undersell yourself. 

Plus, you’ve got to account for taxes, insurance, supplies, and the like.

Unfortunately this setting-your-rate business isn’t an exact science, and you’re more likely to undercharge than overcharge. Here’s a thought experiment that might help:

Stay tuned until stage 303 and we’ll dig into this one more.

Build a safe foundation

It’s ideal to have a financial cushion built up before launching into full-time self employment. Without it, you’re putting a lot of pressure on your freelancing income—which can force you to say yes to clients and projects that can lead to stress and burnout. 

“Don’t start until you’ve saved enough to say ‘no,’” advises Josh Garofalo, a SaaS copywriter and consultant. “So much of the struggle you read about—bad and low-paying clients—can be attributed to the freelancer saying ‘yes’ when they meant ‘no.’” Freelance Writer Catherine Allsop (and the entire freelancing community) affectionately calls this savings cushion an “F U fund.”

“Whatever amount you think you’ll need to get started: save twice that,” says Jeni Williams, a freelance writer and strategist with 24 years of experience.

To put that into equation form, freelance writer Chantelle / Prose & Consonants recommends saving up at least 6 months of personal runway. 

“If you know you need £x per month to keep afloat, try to save up until you have 6 months worth of £x saved separately,” she said. “When you’re having a slow month or months or you get ill or you simply want to take a break, you have some money set aside.”  

Even though it’s ideal to have that cushion built up, it’s not always reality. Brooklin and I didn't have any cushion when just getting started. But once we got out of debt, we focused on saving up an emergency fund. This, along with some luck, is what made us able to stay out of debt, bring in more income, and hit our goals. 

Here are two habits that helped us save up a rainy day/"Go For It" stash.

  • Track your income and expenses. Knowing how much money you have coming in, going out, and owed to you can be tricky, but it will save you some sleepless nights. Use whatever tools work for you, from a simple spreadsheet to sophisticated payroll and invoicing software (I’ve got accounting software recommendations in the next section!).
  • Set aside weekly or monthly time to review your finances. Setting aside time for a money date with yourself and/or your partner to look at your finances allows you to see what accounts are overdue, track expenses, and any other finance tasks that come up will keep you ahead of the game.

This cushion might be a day job you keep while building up your freelance business—you don’t need to dive in off the deep end. Set an income goal and when you hit it, you can quit your full-time job with confidence.

Stage 202: Maturing your business

You’ve taken the plunge and you’ve got the basics in place. Some anxieties and fears have morphed into excitement, and if we’re honest, exhaustion. 

You’re ready to take your business to the next level in the pursuit of freedom and security (and some much needed rest) on this journey.

Register as a business 

Look, I’m no expert—we used LegalZoom to register as a business in 2020 because our tax preparer said it would benefit us financially to be an S-corp. 

So the big take-away I’ll exclaim over and over again is: consult a tax advisor! 

Once you're making self-employed income, consider registering your business as a limited liability company (LLC) or corporation, electing it as an S-Corp, and paying yourself a reasonable salary

Setting up an S-corp in the U.S. is a state-by-state process. This Forbes article gives a good overview of where to start.

We’ll circle back ‘round to the reasonable salary part, but first, your business account.

Set up a separate business checking accounts and credit cards

Having separate bank accounts for your business makes tax time and money management easier.  We use Novo bank and have been very happy. 

Just like in personal finance, there is debate around how to use credit cards. We personally treat it in a similar way as we do our personal finances: The business checking primarily operates to receive incoming payments and to pay a few select items (e.g. payroll.) Otherwise, our expenses go on our business credit card. 

Mark Tosczak shared, “Put your business expenses on a credit card that you only use for business (ideally one that will earn you points or pay cash back). Every 2-3 months, scour your credit card bill for any subscriptions or recurring expenses that you don’t need and cancel them.”

It just makes expense tracking spending easier—which is essential for managing your freelance operation, but also paying less in taxes.   

We use American Express for our business credit card, but I’ve heard great things about Chase Ink Business Preferred, especially in terms of travel points, which appeals to many freelancers.

Set up payroll

Ok—back to that reasonable salary part. If you’ve gotten to this point, you deserve a serious pat on the back. You have enough to give yourself a consistent paycheck, which is no easy feat. Seriously. 

But why opt for a salary?

The legal answer is: if you go the S-corp route, and are making money, you have to pay yourself a reasonable salary to stay compliant. 

The philosophical answer is: instead of getting a mini-high every time a client pays an invoice (and a mini-low every time an invoice is late),you’re set up for consistency and a mindset shift toward what you say yes to, how you take time off, and what you work on. 

The bigger payday answer: Only your salary is subject to payroll taxes, while the distributions are not. I repeat: Distributions are not subject to payroll taxes. Cha-ching.

This leaves some real potential to do salary and tax optimization gymnastics to make sure you’re getting the best results for all your hard work. 

But leave that math for your tax professional: the IRS has strict rules about what a reasonable salary means and how little you can pay yourself via payroll (versus distributions).

So, how do you pay yourself a salary? 

We use Gusto as our payroll system—if I had to choose one software as my best friend, teacher, and guide, I think it would be Gusto. 10 out of 10.

How do you pay yourself a distribution?

Confession: Y’all, I stumbled into this business thing. “Distribution” sounded like a fancy word to me for the longest time. I didn’t know I could literally just transfer the money from my Novo account to my personal account—tax free. It’s literally just the push of a button. No permission or tax form needed!

Invest in yourself and your business 

Spending money on training and tools creates deductions at tax time. Even better, it’s the best way to grow your business as you gain more skills and expand your network.

One rule I’ve started implementing is a no-limit budget on book buying. If a fellow business owner recommends a book, off to my Kindle it goes.

More than one respondent suggested Profit First. “The Profit First system made a big difference for myself and my husband (whilst both freelance/contractors)—and it's great if you have anticipated breaks/dry seasons. He was able to take off months at a time without financial concern,” Darcy Clark said. 

We’ve benefited from online communities like:

If you really want to lean into the “I’m a business owner now,” thing, I highly recommend a business coaching program like 2x. It’s not a cheap investment, but highly worth it if you want to add business operational skills to your freelancing specialty. 

In Stage 101 and Stage 202, we personally struggled to invest in “ourselves” outside of work, because frankly, there was no separation. When we took days off, for example, we could feel the opportunity cost of not turning our time into dollars.

To get around this, you can build this into your financial planning.

Bank some money so you can take whatever amount of well-deserved vacation time (and sick time) works for you. “Create your own PTO fund if it helps you feel more comfortable taking time off,” advises Jake Safane, a freelance writer. 

If you’d like to take four weeks of PTO per year, for instance, you should figure that into your income considerations. You’ll only be earning money 11 months of the year in that case, so if you typically earn $6,000 per month, aim to bring in an extra $500 every month and stash it away for your PTO fund.

(Or, better yet, take my biz account and payroll advice above. That way you get a paycheck no matter what.)   

For an extra dopamine hit, create the kind of profit-sharing and bonuses you’d get from a full-time employer into your freelance financial planning. 

“Drop 10% or more of your gross revenue each month into a high-interest ‘profit’ account, and don’t touch it until ‘profit-sharing’ bonus each quarter/year!” says Brad Lee Bartlett, a copywriter and content writer. 

Let the experts be experts 

One of the best ways to invest in your business is by hiring experts like bookkeepers and accountants. Remember that you’re a business owner—your taxes and finances will be more complex than an employee’s. 

Just as your clients rely on you as an expert to help build their business, some things are best left to the financial experts in your own business. 

“A bookkeeper isn’t as expensive as you think, and they’re WORTH IT,” says Annie Bacher, a copywriter for B2B SaaS brands and teams. Financial pros can help you sort everything out, tell you how much you should be saving, and figure out ways to reduce the taxes you owe too. 

Just make sure you’re hiring one with experience working with freelancers, who knows your state or living situation (hi, fellow expats!), so they know your situation in and out. 

Better yet, find someone who will be your partner and guide. 

Nicc Lewis says, “Get a really good accountant (freelance of course). Price doesn't indicate skill. You need a financial partner to help and guide you, not just a bookkeeper where you are just another client.”

But how do you find the right person? 

  • First step: consider these types of questions outlined by Bench
  • Second step: Ask around—that’s how we met ours. Your network and other freelancers are a great place to look and ask for recommendations.

While we were in this stage, we used Bench as a bookkeeping service. It was helpful to me while we were learning and cleaning up past mistakes, but at a certain point in our growth, I realized hiring a CPA and an individual bookkeeper would be the next move for us. 

I think this decision comes down to what you can afford and how complicated your situation is. 

Stage 303: Optimizing and refining your business

Are we adults now? 

We’re thinking long term and asking ourselves—how do we create sustainability and flexibility simultaneously? We’re feeling more content and prioritizing our health and wellness. 

It’s not perfect, we’re still growing, but our focus is on optimizing the pieces we’ve worked hard to put in place. 

So, as adults do, let’s talk more about taxes. 

Automate and optimize your taxes 

Any experienced freelancer will tell you that having to pay your own taxes regularly is difficult, especially if you’re not taking money out of each invoice or each month. 

Jo Aaron, Managing Director at Run Jump Fly, recommends setting aside a portion for taxes right away. “Stash 30% of all £ as it comes in, so you don’t have to think about corporation tax etc except when you pay it. And then there’s some left over too.” 

The percentage you need to save will vary, depending on the tax laws where you live, your income level, how you’re registered, and a number of other factors. As a general rule of thumb, 30% is the recommended amount to save throughout the year.

Then if you get a refund, you can invest it back in your business.

Tax laws, deductions, and best practices vary enormously by country and by your business structure and revenue. Gusto has a great guide on reinvesting your profits into your business with an eye toward tax benefits. 

Investing in your retirement can also save you money on taxes because it reduces the amount you’ll be taxed on if you’re making pre-tax contributions. While you might not have access to a company-matched 401(k) like W2 workers, there are several good options out there for freelancers. You can open a:

  • Solo 401(k) (for solo freelancers)
  • SEP IRA (for freelancers with a few employees)
  • SIMPLE IRA (if you have less than 100 employees) to save for your own retirement with pre-tax contributions. 

Saving even a small amount for retirement right now adds up over time, and it’s also a way to invest in your future instead of in your tax payments. 

Raise your rates

There ya go, we said it (again). 

Punch that voice inside your head right in its stupid face. Whether you’re an SEO specialist or a graphic designer, you have unique value to bring to the table. Don’t undersell yourself.

What do you think your time, expertise, and skill set are worth? It’s probably more than you think. You need to account for the value you’re providing clients as well as your time. 

“There is not a 1-1 direct correlation between traditional employment and freelancing. Because of that, many things you take for granted you need to plan for,” the Professional Pen recommends. “Do you use payment processing companies to collect your fee? Who is paying the 2.9% + .30, you or the client? Other things you need to consider when you set your rate: taxes, insurance, business supplies, Social Security and Medicare.” 

In freelancing, you have to bill for everything traditional employees have built into their salary—benefits, paid time off, office space if you need it, and any software or equipment. You’re on the hook for all of it as a freelancer, and you need to adjust your rates accordingly. 

Bill Hinchen, a copywriter and scientist, suggests, “Think how long it’ll take you to do something and double it. That’ll cover thinking, redoing, rethinking and redoing again.”

Build even the non-billable work in your pricing (think: admin, meetings, pitching new clients, networking, and marketing). Everything adds up, and the work itself might take longer than you think. 

Let’s look at an example: If you gross $72,000 per year as a freelance writer, and you pay 30% ($12,000) in taxes, you’ll end up with about $4200 of net income per month. Is that enough to pay your insurance, other business expenses, rent, groceries, retirement and other savings, and anything else you need and want? 

Play around with the math, and track your time, using tools like Toggl. When you accurately know how much time you’re spending on projects, you’ll have a better idea of what hourly rate you’re earning. Is that worth your time or do you need a new strategy?

Lastly, don’t forget to diversify your income. Whether that’s adding another service or branching into a new niche, it’ll give you stability and longevity in your freelancing journey. 

“Diversify your content pillars just in case one dries up,” Michelle Jackson, personal finance author, advises. “Curate uniquely designed content for your portfolio that a client might not commission from you, but could influence clients saying ‘yes’ to other paid projects you would like to work on. Diversify your income.”

The caveat here is: diversify at your own pace—you don’t want to spread yourself too thin and not be able to become truly excellent at your craft.

Find your own path by assessing what you want first

Every freelancer enters the world of freelancing for different reasons and in different stages of their professional journey. 

Whether you’re freelancing to provide for basic needs and stability, to add an additional income stream, or to accommodate a more flexible lifestyle—there are ways to manage your finances that give you what you’re looking for in this career journey.

Your goals and approach will be unique. And while there’s no precise blueprint for how to manage your finances as a freelancer, there’s still room for discussion. 

Fortunately, the freelancing community is one of the most kind and helpful groups you’ll be a part of (no gate-keeping here), and there’s a lot to be learned from each other. 

If I knew in the beginning what I know now, I would have more quickly identified and addressed the emotions that were guiding my financial decisions, I would have known where to look to improve my financial literacy, heck—I would have just organized some of our basic financial accounts. 

Here’s to you and your unique freelancing journey. May you learn from our path and others, and create a sustainable future that you love.