10 Tips on How to Manage Your Finances as a Freelancer

By: Rafal Reyzer
Updated: Mar 7th, 2024

How to Manage Your Finances as a Freelancer - featured image

Being your boss isn’t always easy. The responsibility of managing an entire business and all its finances rests on your shoulders, and that can get stressful.

But there’s a reason why there are 1.57 billion freelancers in the world. And that number is climbing. With the right skills and strategy, you can significantly reduce the pressure of personal financial management and create a workflow that’s productive, efficient, and financially sustainable. You just need to know where to start. From basic budgeting to lesser-known fiscal techniques, this list of tips will help you organize your financial affairs and make the most of your freelance career. Let’s get learning!

Here’s How to Manage Your Finances as a Freelancer:

1. Get Money Smart

One of the first steps you can take toward better financial management is to familiarize yourself with its basic principles. Learn the lingo, watch some YouTube videos on the topic, and talk to other freelancers you trust about how they keep track of their finances. The more you understand about managing your finances, the easier it will be to commit to the other steps on this list. So, subscribe to financial podcasts, follow finance-related topics on Google News, and read a few books that will put you in the right mindset.

2. Pick The Right Pricing System For Your Services

As a freelancer, you have the luxury of choosing your wages. Different rate systems have different advantages and disadvantages, and some will align better than others with your area of expertise.

The two most popular freelance rate systems are:

  • Hourly – charging per hour
  • Project-based – charging a flat rate per project/client

Hourly rate systems tend to work better for freelancers who work longer hours because there is a higher earning incentive. However, clients don’t always appreciate not knowing what the final cost will be. Project-based rates are more digestible for clients and can be easier to manage. But if the project ends up taking longer than expected, you could lose money. Choose wisely!

3. Create a Separate Bank Account For Your Freelance Business

Many freelancers find it beneficial to open up a special bank account to keep their money separate. This can make it easier to manage the different costs and expenses that go into your work while leaving personal costs to be dealt with in a separate space. It also makes filing taxes easier, and you’re eligible for more deductions if you run your freelance business like, well…a business!

4. Register For Freelance Taxes

Speaking of taxes… don’t leave them off your priority list. As a freelancer, you should be registered as a sole proprietor, but it’s important to check the rules and guidelines as provided by your state or country. With tax compliance, money management becomes a lot easier. There are plenty of tax calculators, financial file generators, and tax professionals out there, so use them to your advantage.

5. Back Up Your Financial Data

It’s simple but effective. Back up your data! This is good advice for all areas of life, and freelance finances are no exception. Don’t get caught without your tax information, financial records, or invoice history—make sure everything is saved, backed up, and accounted for. It’s good to have everything uploaded to the cloud, but an occasional physical backup is essential as well. Set a reminder on your phone to back up your financial data, and you’ll sleep better.

100 dollar bills and a small car

Keep track of the costs related to your freelance business. For example, you can claim fixed mileage rates for business purposes to decrease your taxes.

6. Track Your Freelance Costs

All businesses have costs, and the successful ones keep track of them. By tracking the costs you incur as an independent contractor, you can make more informed financial decisions. Some common freelance costs you incur are:

Payment processing fees

Every time you transact, the bank charges you a fee. How much does that cost you per month?

Work-related subscriptions

If you’re a designer, you may be paying for Adobe Illustrator. If you’re a writer, you may use Copyscape or Grammarly. There are many types of subscriptions that freelancers use, including hosting, AI software, graphic and video editing tools, etc. How much does that cut into your payments each month?

General supplies

Costs like new technology or tools that sustain your career are also something to consider. Keeping track of costs like these helps you make more informed decisions about how to structure your prices and pricing systems. After all, you deserve to be compensated not just for the work you do, but for the costs you take on to produce it at a high standard.

7. Commit To Saving

Saving is essential for everyone—employees, employers, and freelancers alike. Starting up a savings account or emergency fund is an excellent way to support yourself financially and protect your career from unpredictable economic changes in the outside world. Furthermore, a savings account will enable you to invest and reinvest in your career, providing better technology or equipment to propel you forward. Saving is also just a great long-term habit to develop. Even putting away a small amount each month can make a big difference in the long run. What matters most here is consistency!

8. Draw Up A Contract

Creating a contract to send clients before accepting a job is one of the best ways to protect your interests as a freelancer. In your contract, you can clearly outline your payment terms, clauses, and any other information that legitimizes and protects your career. Copyright, late payment fees, delivery times, and availability hours are all important boundaries to set, especially with new clients. And they can help you get paid on time.

9. Use A Bookkeeping Tool

While it’s still important to develop decent personal finance skills, it’s okay to feel slightly overwhelmed by them. Fortunately, you have options. Using a bookkeeping tool is one of them! These tools will automate, streamline, and optimize your billing systems for you. Some of the best freelance bookkeeping tools in the market are available online. You can download everything from a customizable printable invoice template to a profit-and-loss report or general ledger. Many of these tools are also available for free or have a minimal once-off or monthly fee.

young business woman being anxious about finances

If you put the right systems in place, managing your finances becomes so much easier. A bit of effort every month and online tools are all you need to avoid stressful situations.

10. Opt For Outsourcing

Another option for finance-averse freelancers is simply to hire an external professional for the job. There are plenty of freelance bookkeepers and accountants who would love to take these tasks off your hands; and often at an affordable price. If you’re in the financial position to outsource a responsibility like this, go for it. Especially if accounting causes you endless stress and worry. Plus, you get to support another freelancer in this crazy but rewarding industry of independents.

In Summary…

Like all career paths, being a freelancer comes with pros and cons. Having to deal with your own bookkeeping, savings, and income strategy on your own isn’t easy. But it’s a small price to pay for pursuing your passion on your terms. With these tips, any freelancer can take charge of their finances and create a money-management system that aligns with their goals and aspirations.

Rafal Reyzer

Rafal Reyzer

Hey there, welcome to my blog! I'm a full-time entrepreneur building two companies, a digital marketer, and a content creator with 10+ years of experience. I started RafalReyzer.com to provide you with great tools and strategies you can use to become a proficient digital marketer and achieve freedom through online creativity. My site is a one-stop shop for digital marketers, and content enthusiasts who want to be independent, earn more money, and create beautiful things. Explore my journey here, and don't miss out on my AI Marketing Mastery online course.