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Financial Planning for Freelancers

Zoe Team

Jul 31, 2020

4 min read

A financial advisor reviewing a plan with two clients at a table

Key Takeaways

Separate personal and business finances into different accounts.
Create a detailed budget to monitor income and spending habits.
Save 20-30% of earnings monthly for taxes and build an emergency fund.

Frequently Asked Questions

Why should freelancers have a separate business account?

It keeps personal and business expenses distinct, ensuring income is reinvested into the business properly.

What should be included in a freelance budget?

Include taxes, living expenses, emergency savings, and long-term goals like retirement and college funds.

How can freelancers prepare for taxes?

Set aside 20-30% of earnings monthly rather than waiting until tax season to avoid financial stress.

In this article: how to set up a separate business Account, create a budget, don’t wait until tax season to set money aside, create an emergency saving account and prepare for retirement.

Currently, 62% of US workers have been working from home. In fact, three in five of those working remotely would prefer to continue doing so after restrictions are lifted! Along with a steep rise in remote work has come an increase in the number of freelance workers in the US. Upwork’s Freelancing in America 2019 survey shows that there are 57 million Americans who are freelancers, making up 35% of the US workforce.

Working remotely and freelancing is becoming more attractive to American professionals because of the freedoms it offers. Working freelance or remotely also comes with the freedom to manage all of your finances, including things you wouldn’t think about as an employee, like paying taxes. Financial planning for freelancers and remote workers is essential, as it will guide how you manage your money.

5 Tips for Financial Planning as Freelancers

1. Set Up a Separate Business Account

By setting up a separate business account for your earned money, you can ensure that your personal expenses are separate from your business ones and that your income goes back into your business. Reach out to your existing bank about creating an additional account, or consider switching banks to one that offers you no fees or low fees. A reputable online bank might also be a good option as they tend to not have banking fees and all you need to access them is an internet connection.

2. Create a Budget

A budget helps you plan your monthly income and expenses so you can see where your money is being allocated. This will also help you review if you are overspending and what you can and cannot afford. A budget ensures that you are spending less than you earn. Checking it every week will make it easier for you to adjust it to unforeseen circumstances like a client not paying on time.

Bookkeeping is essential to keep your finances in check. Tracking your expenses, checking your payments, and updating your paperwork every week will make it easier for you in the long-term. It will also help you calculate an average monthly income once you have done it for a while, making it easier to set a budget. Within this budget, you should consider your long-term saving goals.

A budget for freelance or remote workers should include allocated funds for:

Taxes

Short-term financial goals such as a vacation

Your living expenses (if you don’t pay yourself a salary)

Your
emergency fund

Long-term savings, such as
retirement savings
and
building a college fund

3. Don’t Wait Until Tax Season to Set Money Aside

Instead, set money aside every month into a separate savings account. The amount will depend on your tax bracket but should be around 20-30% of your earning s. If you have a steady average monthly income, set up an automatic payment every month. This will take saving off of your mind but make sure you budget for it. Forbes outlines how to do taxes when you are a freelancer and what to watch out for.

4. Create an Emergency Savings Account

In addition to your personal emergency fund, work on growing your business emergency fund. Freelancing income is not consistent, so you must plan for ups and downs. These are funds you can tap into in case you don’t make enough in any given month. The idea is that it will cover your essential expenses. It can also be used to invest in one-off unforeseen expenses, like having to replace your laptop.

5. Don’t Forget About Retirement Savings and Healthcare Costs

Retirement and healthcare savings accounts are costs an employer would usually take care of, without you even noticing. Unfortunately, research by the Center for Retirement Research shows that non-traditional jobs tend to be left without convenient retirement options, which is particularly relevant for older workers ages 50-64.

When planning your finances when you are a freelancer or remote worker, it’s essential you allocate funds towards retirement and healthcare accounts. Looking at having these assets is important for your life. A solo 401(k) or SEP IRA are potential retirement accounts, as they’re both available for the self-employed.

Financial Planning Steps for Freelancers And Remote Workers

Working remotely or as a freelancer comes with a lot of extra tasks to make it financially sustainable. Having the right knowledge will make financial planning simpler and reduce worrying about making ends meet. If you are looking to save time or need personalized expert financial planning, consider hiring a top financial planner. Doing so will help you save more money and achieve your financial goals!

In this article: how to set up a separate business Account, create a budget, don’t wait until tax season to set money aside, create an emergency saving account and prepare for retirement.

5 Tips for Financial Planning as Freelancers

1. Set Up a Separate Business Account

2. Create a Budget

A budget for freelance or remote workers should include allocated funds for:

Taxes

Short-term financial goals such as a vacation

Your living expenses (if you don’t pay yourself a salary)

Your
emergency fund

Long-term savings, such as
retirement savings
and
building a college fund

3. Don’t Wait Until Tax Season to Set Money Aside

4. Create an Emergency Savings Account

5. Don’t Forget About Retirement Savings and Healthcare Costs

Financial Planning Steps for Freelancers And Remote Workers

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The information in the visuals above is for illustrative purposes only and does not represent an actual user's account, balance, or return. Zoe Financial does not provide tax or legal advice.

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