Learning how to budget when your income fluctuates takes time and discipline, but it can be done. If you’ve traded in your cubicle to beco...

8 Money Tips For Freelance Workers

Learning how to budget when your income fluctuates takes time and discipline, but it can be done.

If you’ve traded in your cubicle to become a freelancer, you’re not alone. Fifteen million people in the U.S. (about a tenth of the workforce) have abandoned traditional career paths to work in freelance positions.

Working freelance can take many forms, from working regular hours for a single employer to having a flexible schedule that changes weekly. This generally means you’ll need discipline with your budget. As your own boss, you’ll need to take care of your own finances, your own insurance, and your own retirement savings.

8 money tips for freelance workers
Your financial life doesn’t have to be unpredictable just because your paycheck might be. Here are eight ways you can smooth out your financial situation—and even save while your income fluctuates.


1. Keep track of your time

Time is money, perhaps more so for freelancers than anyone else. And since it’s up to you to track your time, find a system that works for you. Search online: There are a lot of timekeeping apps that make it easy for you to track the time you spend working for various clients.


2. Make a monthly budget

When you’re creating a budget, it’s common to start by noting your net income. For freelancers, it is likely more useful for you to begin with your expenses. Start by logging what you need to get by—rent or mortgage, utilities, car or student loan payments, groceries—and make not of the number. This will help you determine what you need to make from your freelance work. You may also want to create a second budget that includes all of your want-to-haves, such as dinners out, weekend trips or a new smartphone. This will let you know how much you’ll need to work—and earn—to live your desired lifestyle. Don’t forget to account for savings and retirement planning as part of both budget options. Check steps No. 3 and No. 6 for more on that.


3. Build an emergency fund

Experts recommend that salaried employees set aside money to cover at least three (ideally nine) months of expenses in case of a financial emergency. But when your paychecks vary, you should consider covering nine to 12 months. This will give you a cushion if you are between projects or you face an unexpected expense. If you have dependents or fixed expenses like a mortgage or a car payment, aim for the higher end of the savings spectrum.


4. Back up your data

Speaking of emergencies, few things are worse than trying to meet a deadline, losing your work in the final hour and scrambling to make up for the lost time. Time is valuable, especially if you’re a freelancer, and using it to redo work means you might be missing out on the chance to land other paying gigs. So back up your data frequently using an external hard drive and/or a cloud-based service.


5. File quarterly taxes

If you’re self-employed and expect to owe $1,000 or more in federal income tax, the IRS requires that you file estimated quarterly taxes. You might also have to make estimated tax payments if your tax in the previous year was greater than zero.

Reference the IRS rules on estimated taxes for more details and consult an accountant if you’re not sure which rules apply to you. Even if you’re not required to do so, filing quarterly taxes lets you pay your taxes in smaller increments four times a year instead of having to save up to pay for a big lump sum.


6. Save for retirement

As your own boss, you’ll have to take retirement savings into your own hands—and you won’t have perks like matching funds to incentivize you. Self-employed workers have several options for retirement savings accounts, including an individual 401(k). Research different retirement options for the self-employed at Merrill Edge.

It’s a good idea to schedule automatic transfers from your checking account to your retirement account to ensure your savings plan stays on track. Just make sure you’ll have enough money each month to cover the transfer. Also, consider boosting your savings with windfalls, such as tax refunds or big client payments, whenever you can.


7. Get disability insurance

Disability insurance can provide you with income if you have an accident or illness that prevents you from working. The income can keep you from going into debt to cover your basic expenses while you’re laid up. Be sure to get a policy with an own-occupation rider. Without it, your insurance company may refuse to pay your benefit if it feels you can still earn money outside of your current occupation—and that might be at a job that only pays minimum wage.


8. Consider a separate bank account

Creating a separate account for your freelance business can help you monitor your income. You might consider opening a small business checking account, which will give you tools to keep track of your business expenses. Pay yourself a salary by transferring money to your personal account. This setup can be particularly helpful when tax time rolls around. The documents you need to apply for an account, and the type of account you qualify for, may vary, so be sure to do some research. 

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