So you’ve just got the news during that 8 am all hands on deck Zoom call Monday morning — you’ve been laid off. Or maybe your manager has just been toxic, you’re a recent grad, or just an aspiring entrepreneur.
Whatever the case may be, now is the perfect time to break the mold and go in your own direction. But before you blaze ahead, remember that getting your working-for-yourself finances in order is what separates thriving freelancers from struggling ones. Use this financial checklist for self-employed workers and freelancers to make sure nothing falls through the cracks.
💰From full-time security to flexible freelance
What is the biggest change to your income when starting your own business? Realizing that with freedom also comes uncertainty, and this is something that must be planned for.
Here are our top financial planning tips to help smooth the transition to working for yourself:
✅ Embrace the mindset shift
As a freelancer, you are your business. This means adapting your lifestyle and spending according to your income flow, as well as thinking beyond your personal expenses and considering the costs that come with running a business.
✅ Plan for income peaks and valleys
It's essential to shift from expecting a consistent amount of money each paycheck to planning for an income that can significantly fluctuate. That means being more proactive in budgeting, saving, and investing.
✅ Let your emergency fund work for you
As an emergency fund freelancer rule of thumb, aim for 3–6 months of necessary expenses in a high-yield savings account before you fully commit to working for yourself.
- It can cover unexpected personal expenses, make up for low-income months, and ensure you have peace of mind while you get your business off the ground.
- Having 3-6 months of your necessary expenses in a high-yield savings account is a good start.
✅ Utilize your severance pay and unemployment benefits
If you’re receiving severance pay or unemployment, consider these income sources as a foundation for your emergency fund as well as seed money that can cover the initial costs of launching your freelance business.
- These funds can provide you with a solid support foundation as you start on your journey, but remember that you must still have a good understanding of the requirements to start your business and how your freelance earnings will cover your lifestyle going forward.
✍️ Building your Business Budget and Financial Plan
Building a solid budget is the best place to begin. A strong freelancer financial plan covers both your personal spending and your business costs — and it needs to be reviewed monthly, not annually. As a 9-5 employee, creating a personal budget to stick to can be challenging, let alone adding freelancing to the mix.
If you’re unsure where to start, Doing Well can help you make sense of the madness. We specialize in personal finance, providing a unique financial plan tailored to your needs.
Here are some of our tips and tricks to effectively start building your budget as a freelancer:
✅ Create an overall financial plan for your business and life
- This plan should outline your overall expected income and expenses (both business and personal).
- Although it may be hard to predict, this plan helps you gain a realistic vision of what it will take to start up your business and keep it going.
✅ Break down your budget and rebuild it with freelance finances in mind
- Look at each item on your budget including primary and secondary income streams, essential expenses, business costs, and discretionary spending.
- Budgeting for freelancers works differently than a salaried budget — review and adjust it monthly since your income won't be the same each pay period.
✅ Separate personal and business expenses
- Managing independent contractor finances starts with a clean separation between what's yours personally and what belongs to the business. Open a separate business bank account for your income to flow to and transfer money to your account — bonus if it's a HYSA!
- Keep your business emergency and operating funds here to ensure it's not mixed with personal funds
- Pay for business expenses out of this account or with a business line credit card
✅ Manage tax time
- Keep track of all your expenses that qualify as tax deductions every month
- Consider structuring yourself as an LLC or Scorp which both have multiple tax advantages (and it can help you with credit and liability scenarios!)
- Set aside a portion of your income for self-employment taxes (20% to 30% is recommended) as most freelancers receive a 1099 income, which does not have taxes withheld automatically like a W2 salary.
- Work through a self-employment tax checklist each quarter: estimated tax payments, deductible expenses, home office, mileage, and health insurance premiums.
All of this can seem overwhelming, at first — DoingWell can provide you with a personal financial coach who is right by your side step by step as you structure your budget and finances.
🔨 Forging your financial future as an independent professional
As a small business owner, there are still a few critical components to add to your financial puzzle.
These will help secure your financial future and ensure your personal finance strategy propels you towards financial independence and freedom:
✅ Health Insurance
Health insurance for the self-employed is one of the biggest financial shifts you'll face — it's your responsibility to find and fund a plan on your own. You can find a plan through various channels including:
- The Affordable Care Act Marketplace
- Freelancer unions like Freelancersunion.org
- Professional associations and groups for your given profession
- Direct purchase from private insurers
✅ Retirement
The earlier you’re able to start planning your retirement, the better. Without the cushion of an employer-sponsored retirement plan, it's up to you to ensure your golden years are secure. Consider setting up:
- A Solo 401(k) that allows you to save just like a traditional 401(k), without the employer’s match. Don’t forget to roll your previous 401(k) with your employer into an IRA.
- An IRA including a Traditional and or Roth, depending on your income and tax situation
- A SEP IRA for freelancers and entrepreneurs who grow their business to have employees, or who want to contribute big chunks of change.
✅ Life Insurance
- Term life insurance offers protection for a term of time, and while it does not contain a cash value, it has lower premiums and protects your family in case of tragedy.
- Permanent life insurance contains a cash value that can be used for supplementing retirement income, buying your first home, or supporting your business needs. Its higher premium means you can do more with it, and it offers a death benefit as well.
Starting your own business is no easy feat - it takes perseverance, discipline, and hard work. But the rewards of doing something on your terms and building something you can call yours are exponential.
Don’t allow your finances to hold you back from growing the business, career, and life of your dreams. Be your boss and hit off all the boxes on your financial checklist once and for all.
Doing Well understands the unique financial situation freelancers find themselves in and can help with:
- Building you a personalized budget with your business in mind
- Monthly bookkeeping and tracking your expenses across different platforms
- Spending management and expert analysis into your financial picture
- Automating your savings and accounts management
- Retirement planning, review of your insurance, and help to organize your expenses for tax time
- A push in the right direction towards tax and legal professionals when needed
- 1:1 coaching with a personal financial professional, providing you with financial therapy and education
- Follow-up calls and asynchronous support available for your changing business needs
Get your freelancer financial plan. Let Doing Well streamline your finances so you can focus on what you do best - delivering that unique value-add you bring to this world through your thriving business.
