Master your money: A primer on running freelance financials like a business

You probably started freelancing to cut the corporate chains or build a business that works around your personal life. Congrats on your newfound freedom! But too many people launch themselves into freelancing without creating or maintaining a stable foundation. 

As a freelancer, money matters. Once you start making money, management is key. You need cash not only to grow your business, but also to lead a healthy life that enables you to share your talents and do good in the world. 

Anyone can implement simple practices that make managing your money a breeze—or at least a little less of a struggle.

Level-up professionally

Whether you see yourself as a business owner or not, freelancers are one-person businesses in the eyes of the government. If you haven’t already made your business official legally, do it. This will help not only when tax season rolls around, but it can also protect you if a gig goes awry. 

Determine your business structure. Generally freelancers go with an LLC or an S Corp, depending on varying legal and financial needs. Read up on both before you decide. Also, see if there’s a local SBDC or SCORE mentor who can walk you through your options based on your unique situation. If you don’t choose anything, you’ll be considered a sole proprietorship. It’s the easiest, most affordable option upfront, but leaves you open to the most legal risk. 

Track that cash

We all know that freelance income ebbs and flows. Build up a “cash cushion” of six to 12 months of foreseeable expenses to protect yourself from unexpected curveballs.

It’s important to have an understanding of the money coming in, going out, when, and from where. Set up a simple tracking system—AKA budget. You can get fancy with apps or paid services, or you can track in a basic Google Doc (like this template I made for you all). I break mine down by month, mapping items out as early as possible (retainers, standing bills, pre-planned travel), then updating when a new payment goes in or out.

I like to check on my money anytime there’s any activity (my Enneagram 1 showing itself in full force here), but many people set up weekly “money dates” to go over the week’s finances. It’s sort of a pain, but it saves you from trying to figure out what that mysterious $18.05 purchase was a week before taxes are due. I’ve even caught errors in 1099s that clients have sent me because I knew exactly what they paid me and when.

Knowing where you stand with your revenue and expenses allows you to plan for your personal and professional spending with less stress. You can also stay on top of your quarterly tax payments, rather than scrambling to come up with the cash. Being aware of your cash flow means you know when you can relax and do the work you love to do, and when you need to kick it into high gear with referral requests or lead nurturing. 

Added bonus: tracking your finances year-round saves you a ton of money come tax season because everything is organized and ready to go for your accountant.

Equip yourself

There are plenty of free and affordable tools out there specifically for freelancers and small business owners like us. Many people have had good luck with Wave, Bench, Xero, and Quickbooks Small Business. Some options can even invoice clients for you. Do some digging to see which might be the right fit for you and your needs.

Although it’s not required, I recommend opening a new bank account and credit card. Neither have to be officially for businesses—weigh your options because there are perks and drawbacks for business account holders. Having separate accounts shows you a clear divide between your personal and freelance expenses and prevents confusion down the road. 

Track your hours, even if you don’t bill hourly. This will allow you to evaluate your pricing at the end of each project to see where you’re killing it and where you need to charge more. Knowing how much time you’re spending can also help you scope out how many more projects you need to source in order to hit your income goals. For example, imagine you want to bring home $75,000 this year. Let’s say you’ll have about $20,000 in expenses (including insurance, courses, conferences, software—all that jazz). You also need to account for about 30% in taxes, just to be safe. Which means you need to bill $127,000 this year, or $10,600 each month. Yep, on top of all the non-billable time you spend marketing, doing admin work, networking, and living your life.

If you really, truly can’t be bothered to manage your own money, be sure to invest in a bookkeeper you trust, or a parent, buddy, or partner who is willing to keep your books in order. Bottom line: Keeping track of your money is a must-do, no matter how it gets done.  

Invest in you

Coaches, masterminds, the latest software, and new equipment all cost money. If you want to improve yourself and your craft, you need to be able to bankroll it. Have a game plan for how to build and move forward with a sense of control and direction. Keeping an eye on how much money is in the bank—and how much you’re waiting on to come through—allows you to make surer bets on your personal and professional development.

Davylynne Wills (CLTC, FIC), Financial Associate at Thrivent Financial, recommends you start with goal-setting if you’re looking for ways to get more organized with your finances: “Make sure your goals are SMART—specific, measurable, achievable, results-based, and timed. By goal-setting, you’ll start to make intentional choices with your money and understand what your financial situation truly looks like. As you work towards your goals, you’ll have an opportunity to evaluate your progress, figure out where there’s still room for improvement and celebrate important milestones.”

All the little things that come with money management can fall through the cracks or play second fiddle to client work, but these financial basics will help you build a sustainable business that’s poised for growth. You deserve to live the life of freedom that freelancing can bring you—master your finances to make that vision a reality.