#5onFri: Five Ways to Protect Your Finances as a Freelancer

by Indiana Lee
published in Community

Writers often struggle with fiscal matters. After all, few things are less creative or elegant than a calculator or a checking account. Even so, it doesn’t change the fact that a successful freelance career is dependent on sound finances.

Here are five simple ways that you can care for your freelance finances without getting too distracted from your writing work in the process.

Separate Personal and Business Fiscal Matters

As a freelancer, it’s easy to blur the lines between personal and professional finances. However, if you want to be financially safe, you have to resist getting lax in this area. Strive to keep these activities separate by:

  • Opening up separate bank accounts for work and personal life. 
  • Having all work payments go into your bank account first. 
  • Paying taxes from the correct account, depending on if you’re paying personal or business taxes. 
  • If you’re making a personal purchase, avoiding using your business card. 

You get the idea.

Track What You Make and What You’re Paid

A lot of thought goes into what writing is worth. Should you accept low pay? Should you hold out for larger contracts? At a certain point, though, you’re going to compose something — and then you’re going to get paid for it.

When that happens, you should do two things:

  • First, meticulously track the work that you’ve done: Every time you write something, use a spreadsheet or some other document to keep track of the money that you’re owed. Otherwise, it’s easy to forget. When that happens, things can quickly fall through the cracks.
  • Second, track what you’ve been paid: This has two benefits. First, it helps you understand when you haven’t been paid yet. More importantly, though, it also helps you see how much money you currently have available to pay yourself. 

Some clients pay within a day, others can take a month or two. By tracking what you’re owed and what you’ve been paid separately you can maintain a better handle on your finances at all times.

Underpay Yourself

If you want to protect your financial state, you have to ensure that you aren’t living beyond your means. The tricky thing about that is that, as a freelancer, you may not have a clear idea of how much money you’re actually making — and that’s okay. In fact, that’s normal. 

Nevertheless, there is a way that you can bring some stability to your erratic income: by underpaying yourself. 

If you’re projecting your annual income to be $50,000, you should be able to pay yourself $4,166 a month (before taxes). However, what you don’t know is if you’re going to hit a point where you lose a client and your pay dips for a few weeks or a month or two. To be safe, pay yourself something like $3,500 per month instead. This will naturally allow a buffer of cash to accumulate in your business account, which can help you through any low points in the future.

Stay Above Board with Your Financials

Freelancing is hardly the time to start asking for cash under the table so that you can add it to your envelope system. Instead, set up a clear financial structure for yourself that takes care of everything in a trackable and honest manner. A few tips to do so include:

  • Use secure banking options: Personal data safety isn’t just something to think about with your writing. It’s also important to consider it with your finances. Open up a business account with a reputable bank, make sure you have solid mobile device security before using a banking app on your phone, and so on.
  • Set aside and pay your taxes: This isn’t just a good idea, it’s critical to financial stability. You don’t want to be surprised by a huge tax bill each April. Set aside roughly 25-30% of your income and then make your quarterly estimated tax payments on time.
  • Use professional help: Even if you’re handling your finances well, you may want to consider professional accounting help when tax time rolls around. The extra cost is well worth the fact that you can rest at peace knowing your legal financial obligations have been taken care of correctly.

It can be challenging to make an extra effort to stay above board with your freelance income. You’re already busy running your own business, getting new work, and writing existing content for clients. However, if you want to protect your finances, you have to find the time to cover things like secure banking and taxes.

Stick to a Regularly Updated Budget

Finally, if you want to maintain control of your freelance finances, you have to follow that age-old advice to keep a budget. Budgets provide a sense of structure to your financial state. They help you identify if your income and expenses are balanced and can help you budget and save up for big items like furniture or a car.

Once you have your artificially underpaid paycheck in hand, create a budget that reflects all of your income, expenses, savings, and debt.

Creating Financial Stability

Freelance writing is an iconically unstable career — financially speaking. The truth is, though, as a freelance writer, you’re operating with highly diversified streams of income. In other words, you don’t have to live under the fear that you may lose all of your income at once if you lose a client or even two.

While income typically isn’t too much of a concern, the real struggle comes from managing the finances that you earn. So use the above tips to help cultivate a more stable financial footing for your independent business. If you can do things like underpaying yourself and pay your taxes on time, you’ll eventually find yourself in the most secure financial state possible.

Indiana Lee is a writer and journalist from the Pacific Northwest with a passion for covering workplace issues, social justice, environmental protection, and more. In her off time she enjoys hiking with her two dogs. You can follow her on twitter @indianalee3, or reach her at indianaleewrites@gmail.com

Enjoyed this article?