Managing money as a freelance writer may not sound super complicated, but when you get into the nitty-gritty of it, things get a little more complex. Traditional jobs typically deduct taxes, health insurance, and retirement savings from your paycheck automatically. With freelancing, you're 100% responsible for those deductions.
And, that's just the start of the complications freelance writers experience with money management. To add insult to injury, there's no guidance on how much is enough when it comes to setting aside money for taxes. Plus, no employer match to your 401(k) or an employer contribution to your health plan.
What's a freelance writer to do?"It's safe to say many freelance writers feel anxious, overwhelmed, and stressed about managing their finances — especially when their income is sporadic at best." Click To Tweet
With little to no direction, it's safe to say many freelance writers feel overwhelmed, anxious, and stressed out about managing their income and expenses — especially when their income is sporadic at best.
Worse yet are the freelance writers who adopt the “ignorance is bliss” ideology and don't take measures to establish any sort of financial plan.
Failing to create a plan to manage your freelance writing finances can lead to disaster at tax time. Is there anything more terrifying than large amounts of money to the government?
Part of running a successful freelance writing business is putting systems and strategies into place that help your business run more efficiently. Money management is one of those systems. With that in mind, I'm sharing some of my best (and easiest) tips for managing your money as a freelance writer and help take some of the stress out of tax season.
Get the scoop below!
5 Ways to Manage Your Finances as a Freelance Writer
There's no shortage of advice when it comes to managing your money and income as a freelance writer. That being said, there are three tried and true money management tricks I've used in my own freelance writing business.
01. Set Aside Taxes Every Time a Client Pays an Invoice
I can't stress enough how important it is to do this! You don't want to file your taxes only to find out that you owe hundreds, if not thousands, of dollars in taxes and you didn't set aside a dime.
Phew, I'm sweating just thinking about it!
How much you set aside will depend on your goals, but the general rule of thumb is about 20% while apps like Catch recommend a minimum of 25%. However, I recommend chatting with your accountant to find out what the best percentage is for you.
When I was first starting out and didn't have an accountant, I used this website to help me calculate my income tax. It's not perfect, but it will give you a decent idea of what to set aside each time.
Another thing to keep in mind is that as your business grows, you may be required to pay quarterly taxes rather than one lump sum the following April. But again, your accountant will help you figure that out.
02. Open a Separate Account for Your Freelance Writing Biz
This was one of the first things I did as a new freelance writer. I have a checking account solely for my business and every time a client pays an invoice, it gets deposited there. I also opened an online savings account and used it to house all of the money I set aside for taxes.
When I first started freelancing, I set up my online savings account with Ally, which I cannot recommend enough. For one thing, Ally has an awesome interest rate on savings accounts. The other thing that appealed to me was not having easy access to the money since it's an online bank. While I now use a savings account through Catch for tax savings, I still use Ally for my checking and personal savings accounts.
Having separate accounts is also handy because it keeps your business and personal expenses from getting too tangled. Generally, one account for all your expenses as a solopreneur is fine, but I suggest keeping them separate because it can help you gauge business growth and keeps things from getting messy at tax time.
03. Use an Invoicing Software
There are a lot of invoicing programs out there: FreshBooks, QuickBook, HoneyBook, the list goes on and on. The one you use often comes down to personal preference and the different functions you need.
I currently use WaveApps, which I really like. It's 100% free to use and does many of the things QuickBooks does. I use it to send my clients invoices, and they have the option to pay online or make a direct deposit right from the invoice. I also use it to track expenses and I can even upload my receipts so I have digital copies for tax time.
Speaking of expenses, here are some of the important things to track for tax write-offs:
- Mileage + fuel
- Office supplies
- Utilities (If you work from home, you can claim a home office credit, which includes utilities like internet, electric, and even your phone.)
- Meals and other expenses related to business meetings
- Web hosting + advertising fees
You can read more about why I recommend Wave in this blog post.
04. Invest in Finacial Tools & Resources for Freelancers
There are a lot of financial tools and resources available for freelancers. Below are two of my favorite tools for managing finances as a freelancer.
You've probably noticed I've mentioned Catch a few times now. This is a new discovery for me, but I'm already hooked! (See what I did there? 😉) Catch is a platform designed specifically for “freelancers, contractors, gigsters, part-time, and other non-traditional workers.”
When you create a free account with Catch, you can develop a plan to automatically set aside a percentage of your income for things like taxes, retirement, time off, and more. It even helps you navigate the health insurance marketplace to find the best plan for you. Catch will create a savings account and/or an investment account for you, depending on the benefits you chose.
Then, you just link your Catch account to your bank and it notifies you every time a deposit hits your account. You'll confirm whether the deposit was income and decide whether or not you want Catch to set aside/invest your chosen contributions.
It's seriously so simple! While I appreciate the tax help, I'm most excited about the retirement account Catch set up for me. It's so nice to be able to “set it and forget it” when it comes to retirement savings, especially as a freelancer!
Catch is definitely worth giving a shot, and when you sign up for an account you can earn an extra $25 towards your benefits savings. Just use this link or enter my referral code, KAI085, during sign up.
In addition to using a service like Catch to manage freelance finances like paying taxes, I highly recommend opening an investment account. My favorite app for this is Acorns.
You don't have to have any prior investing experience to get started with Acorns. Every time you make a purchase, the app will round up the amount to the nearest dollar. When it reaches $5, it will automatically be invested in your investment portfolio.
It's kind of like a set it and forget it way to invest money.
Here's how it works:
- Sign up for an Acorns account.
- Link your bank account and any debit or credit cards you want to use to fund your investment account.
- Answer a series of investor questions.
- Take a short quiz about your life and goals so Acorns can help you find the right portfolio.
- Accept the recommend portfolio or choose a different one.
05. Educate Yourself with Books on Money Management
The following books are excellent resources on managing money as a freelance writer. Both are chock full of helpful tips on how to set up the financial side of your business. The Freelancer’s Bible is definitely a must-have for freelancers because of the wide range of topics it covers.
The Money Book for Freelancers, Part-Timers, and the Self-Employed
“Can your earning style be cheerfully described as a cycle of feast or famine? Are the checks for every gig or project you invoice for arriving well after you need to pay your monthly bills? Every freelancer knows it's not easy living on an irregular income. But now you can take heart. Longtime freelancers and bestselling authors Joseph D'Agnese and Denise Kiernan share the easy-to-follow system that allowed them to build wealth and financial security while never sacrificing the creative careers they loved.
The Money Book for Freelancers, Part-Timers, and the Self-Employed describes a completely new, comprehensive system for earning, spending, saving, and surviving as an independent worker. From interviews with financial experts to anecdotes from real-life freelancers, plus handy charts and graphs to help you visualize key concepts. You'll discover how to pay bills even when the money isn't flowing your way, how to put in place a bulletproof system for saving, how to eradicate debt, and how to plan for all the things you absolutely deserve.” — Amazon
The Freelancer's Bible
“Written by the authority on freelance working, Sara Horowitz, MacArthur “Genius” Fellow and founder of the national Freelancers Union and, most recently, the Freelancers Insurance Company, The Freelancer’s Bible will help those new to freelancing learn the ropes, and will help those who’ve been freelancing for a while grow and expand.
It’s the one-stop, all-encompassing guide to every practical detail and challenge of being a nimble, flexible, and successful freelancer: the three essentials of getting clients and the three most important ways to keep them happy. Five fee-setting strategies. Thirteen tactics for making it through a prolonged dry spell. Setting up a home office vs. renting space. The one-hour contract. A dozen negotiating dos and don’ts. Building and maintaining your reputation. Dealing with deadbeats. Health Insurance 101. Record-keeping and taxes. Productivity, including a quiz: “What Is Your Ideal Day?” Building a community. Subcontracting and other strategies for taking your freelancing career to the next level. Retirement plans, plans for saving for education, and how to achieve financial freedom.” — Amazon
Managing money and preparing for taxes as a freelancer doesn't have to be complicated or overwhelming.
Taking the right steps and educating yourself about finances as a freelancer or self-employed individual will set you up for success. Talking with an accountant is one of the best ways to ensure you're on the right track when it comes to your finances as a freelancer, but the tips mentioned above are a great place to start.
Let's do a quick recap of what we covered, shall we?
Money management tips
- Set aside taxes every time a client pays an invoice. No exceptions!
- Open a separate bank account for your income and tax savings. An online-only savings account is the best bet for housing tax savings, as it removes temptation and online savings accounts (like Ally) tend to have great interest rates.
- Use an invoicing software to track income, expenses, and taxes. Keeping track from day one keeps you informed of where/how your money is being spent and ensures there are no surprises down the road.
Tools and resources for managing money as a freelancer:
- Catch – Take the guesswork out of saving for taxes, retirement, health, and time off with Catch. Use this link or enter my referral code, KAI085, during sign up to earn an extra $25 towards your benefits savings.
- The Money Book for Freelancers, Part-Timers, and the Self-Employed by Joseph D'Agnese – Your guide to creating a “comprehensive system for earning, spending, saving, and surviving as an independent worker.”
- The Freelancer’s Bible by Sarah Horowitz – An “all-encompassing guide to every practical detail and challenge of being a nimble, flexible, and successful freelancer” including managing payments, expenses, and taxes.
There you have it; my top 5 freelance finances tips.
I hope you found this article helpful! You may also want to check out this article on 3 simple ways freelancers can save for retirement.