finance tips for freelancers and independent contractors

Business advice guru Michael Gerber famously noted one of the top reasons freelancers often fail—we just don’t like the boring stuff.

The kinds of people who are happy with the detail-oriented, boring scut work that makes for a successful freelance career are also the kinds of people who are happy working a regular job with a commute and benefits.

This is truest when it comes to finances. Freelance work of any kind is a feast-and-famine situation, with periods of strong income interspersed with periods of worrying about your next mortgage payment.

Worse, the kinds of folks who become freelance writers often never took classes about how best to manage money for a business—and make no mistake, when you’re a freelancer, you’re also a business. Worse than that, the gray area for one-person shops makes money management and staying on top of tax laws confusing, to say the least.

Put it all together, and the financial side of freelance writing is a huge ball of potential disaster. We won’t solve it in a single blog post, but here’s the top tips you should start working on right away.

Financial Tips for Freelancers

Now is a great time to take a good, hard look at all this.

Do a year-end review, then set yourself up with a plan for next year to ensure that you’re starting with a solid financial foundation to grow your freelance career.

1. Set Financial Goals

Successful businesses set financial goals and then meet those goals. If you want your freelance writing business to succeed, that’s what you have to do, too. I use three different goals when I do my annual planning:

  • How much do I need to make to pay all my bills?
  • How much do I need to make to pay my bills and have some fun?
  • How much do I need to make to live the dream?

Once I know what each of those numbers is, I look at my average income from assignments and figure out how many assignments I’ll need to reach those goals. Then I figure out how many of those assignments are covered by recurring clients.

And what’s left? That tells me how many new clients I need.

Run these numbers three months in advance of the time period you’re planning for (i.e., do this at the beginning of July for your needs in September). That gives you the lead space you need to get those new clients.

2. Establish a Slush Fund

Bake a $5,000 to $10,000 slush fund into your financial goals early, and fill it as quickly as possible. This is different from your retirement savings, general savings account, or the “emergency fund” most financial advisors recommend.

This is a $5k-$10k account earmarked for lending yourself money during months where your writing income falls short of your needs. If your goal for October is $7,500 and you only make $6,000, pull $1,500 out of the slush fund to make up the shortfall.

Here’s the key: pay it back whenever you make more than your goals. Only when the fund is completely full can you count the extra money as a surplus and spend it on beer, or vacation, or a new flatscreen. This is critical to keeping your monetary stress low and your writing life fun enough to justify all the extra hassle as compared to just working a job.

3. Maximize Your Credit Score

Here’s the bad news about being a freelancer and credit: people who make loans don’t like lending to you. They want nice, “reliable” W2 income. Your 1099 and corporate earnings do not make the loan officers and underwriters happy.

To combat that, you need excellent credit. I mean >750. If you’re not there yet, get busy building that credit with the following tips:

  • Run a few regular expenses (like utility bills) through your credit cards and pay them off within a week of them showing up.
  • Pay down all credit cards and lines of credit so the balance is never higher than 60% of the limit
  • Set up autopay on all your credit accounts so you never accidentally fall behind
  • Kill off low-balance installment loans. They don’t help your score much, but they can impact your debt-to-income ratio.

This one is a long-term game, but absolutely vital to giving you the financial flexibility you’ll need to really crush your freelance career. Get started now.

4. Pay Your Quarterlies

If you run a business, including freelance businesses (and yes, side hustles count here), you have the option of making quarterly payments toward your annual tax bill. It works a lot like the withholding from a paycheck: you give the government an amount of money based on an estimate of your tax bill, then at the end of the year you do your taxes and count those payments toward the final, official amount. Then you write Uncle Sam a check or you get a refund.

If you don’t pay your quarterlies, you end up with a big tax debt in the spring. Not a lot of freelancers have the scratch lying around to pay it off in one go, like the government wants. That can kill a business entirely, or put you in a situation where you’re working most of the year just to handle the debt you accrued.

Nobody wants that. I know it’s a pain in the butt, and that writing those checks can literally, physically hurt, but pay your quarterlies. It’s better to write out four kinda-large-painful checks than one massive, could’ve-bought-a-car-for-that check.

Pro tip: Use your slush fund if you have to. Never fall behind on your taxes.

5. Track Your Expenses

When you work for yourself, you get hit by an adorable extra tax rate because you are self-employed. The key to not being financially ruined by this extra taxation is to get aggressive with your business expenses. Don’t lie (never lie to the IRS: they are better at catching lies than you are at lying), but you’d be surprised how much of what you spend is a legitimate business expense.

So: while you’re going about your day, keep track of what you spend. Take photos of your receipts, or use one of the dozens of expense tracking apps available for free or just a couple of bucks. Have your accountant put as many of them as possible to work saving you money.

Pay special attention to research, mileage, and your home office. All three of these are untapped gold mines of tax savings most freelancers don’t leverage as fully as they can.

Check out this handy post for some of the top tax deductions for freelancers.

6. Solve Insurance (Sort Of)

The two best solutions for a freelancer’s health insurance are marrying somebody with a regular job, or joining the military to get veteran’s health benefits. Moving to a country with universal health care is a strong third option.

Since none of those are universally appropriate options for freelancers, you may well have to figure out something else.

Right now, the best bet is to have your company—yes, your freelancing company (you did set up an official company, right?)—buy you health insurance and get what tax benefits you can from the expense

Include the cost in the financial goals you set for your company.

Hiring an insurance broker isn’t a bad idea here. They get paid by the insurance company, not by you, and they understand this complex field in ways you probably don’t.

While you’re at it, look into long-term and short-term disability insurance. Your income depends on your ability to write. A sprained wrist or brain injury puts you out of a job. So can a broken rib or back pain that puts you on pain meds that make you unable to write.

This is a complex topic that needs a whole book or class to cover completely.

But start now with what you find here.

You’ll learn more every day you stay in business.


For more on the business of writing, read on!