7 Tips for Managing Your Finances as a Freelancer or Independent Contractor

By Myles Leva


Last Updated: March 7, 2023


When we write about managing finances, we naturally focus on the average person.

Most people work a full-time or part-time job and pay regular income taxes. But freelancers and independent contractors aren’t a fringe economic minority. In fact, they make up a huge chunk of the global workforce.

While freelancers and independent contractors are a crucial part of the global economy, being one of either has a major downside. It is more difficult to manage your personal finances for several reasons:

  • An inconsistent and often unpredictable income
  • More personal financial responsibilities
  • Different tax rules
  • Personal money management under the above pressures

In this article, we will go over all these issues.



How do I manage my freelance income?

Let’s go over 8 rules to follow that make managing a freelance income easier.


1. Aggressively track everything

If you don’t have a comprehensive spreadsheet, you’re doing freelancing wrong.

Make sure you use a spreadsheet that produces clear statistics that paint a sobering picture of your personal finances. The spreadsheet must break down your expenses into broad categories:

  • Absolute life necessities (food, rent/mortgage, bills)
  • Taxes (while they’re necessary, they must be addressed separately)
  • “Wants” (everything you don’t absolutely need)

Within these categories, you will need to break it down further. Needs can usually be split into the above 3 categories. Wants can be split into many different things but should be broken down according to what is more important or fulfilling for you personally.

With this, you can set expectations and track statistics.

The statistics to track are what percentages of your current income go to each category and subcategory. These percentage figures will change as your income fluctuates, but it will help keep you mentally alert to the state of your finances in a clearer way.


2. Build a more serious emergency fund

One of those “expenses” categories you will need to pay close attention to is emergency savings.

You will need to build it up until it suffices as a safety net. What constitutes a “safety net” should be at least 3 months of your necessities. Ideally, you should aim for at least 6 months of comfortable living that includes some of your more important “wants”.

Of course, the more you save, the better, as the nature of your income is less predictable.


3. Back up your data

This step is crucial for any freelancer who works online or with files. It can be ignored by many types of freelancers for whom this kind of data isn’t a necessity.

This is another type of emergency preparation that can save you from a disaster. There’s nothing worse than rushing for a deadline because you lost access to your work. Lost time is another major cost for contractors.

By backing up your data you can be better prepared for emergencies such as your devices being damaged or destroyed.


4. Make a consistent retirement plan

You don’t have access to an employer-sponsored plan. You are under no obligation to make retirement contributions. It’s often even difficult to build up anything like regular contributions made by employees and their employers.

But overcoming this difference is important if you don’t want to work until you die.

You can still open a regular retirement savings account. In most countries, you can receive the same benefits that everyone else gets.

In the US, you can open a self-employed 401(k). It’s sometimes referred to as a “solo” or “individual” 401(k). You can contribute to it as an employee and then as an employer.


5. Use several separate bank accounts purposefully

You can compartmentalize your finances through different bank accounts. Obviously, anyone can and many people do. But as a self-employed freelancer or contractor, the benefits can make even more sense.

For long-term or emergency savings, for example, a high-interest savings account is the best option. You have some transaction restrictions, but in a way that can be a good thing. What you have is a separate account specifically for one thing that you don’t touch except for specific purposes.

Think on the same terms for other accounts with well-specified purposes and don’t mix them together. For self-employed small business owners, be careful about mixing business and personal income.


6. Schedule invoices

Unpaid invoices causing unstable real income is a common problem for freelancers. Pay is tied to project completion, but only to an annoyingly uncertain extent. So, try changing the due dates to an earlier time and try automating your invoicing.

As an extension of this, clearly state the terms for payments in your contracts. You are able to add a clause for late fees as well. You should be reasonable in your terms, such that you are asking for reasonable timing in your payments with reasonable penalties for failure to reach them.


7. Automate all the above

Budgeting, saving, data backups, and invoice scheduling can all be automated in one way or another. Only the creation of separate bank accounts can’t be automated. However, transactions after creation are.

Automating can be difficult, so start slow so as to not make mistakes.

As an alternative to start with, simply set alarms to remind yourself to do certain things without actually automating a meaningful action.

The freelancer/gig economy demands some extra “homework” when compared to a full-time job. But once you get it properly set up, it doesn’t feel as hard.



What is the freelance or gig economy?

The freelancer/gig economy describes the work arrangement of working with different clients on a contractual basis, as opposed to full-time employment.

The gig economy is the economic space where these practices exist.

As an economic space, the gig economy is constantly expanding. Many people who participate in it are also working other jobs at the same time.



What are the 3 best practices you must do to manage your own funds?

It’s a simple process if you want to break everything we’ve gone over down into just a few key points:

  • Keep track of your records and data
  • Set financial goals and stick to them
  • Maintain discipline



Conclusions on Finances as a Freelancer

Managing your finances as a freelancer or independent contractor is just different.

It may be a difficult shift to make smoothly if you are currently transitioning into the gig economy. This list is also by no means exhaustive, but each point is simple and just makes freelance finances a little bit easier.

Photo by Canva Studio


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