Freelancer Finance, Part 2: How to Better Manage Your Freelance Income

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Even though my freelance editorial business was technically profitable within a year, it took me three more years to start paying myself a regular salary. Sure, I would take draws to pay personal expenses, but they were minimal and erratic. I was reinvesting and saving as much as I possibly could—a fear-based reaction to being a freelancer.

I had the financial security of knowing my business savings account was growing, but I felt like I couldn’t spend any money unless it could be deducted as a business expense. I was cash poor, and struggling to understand how to fix it. As I mentioned in Part 1 of this series, I also didn’t really understand that my business income was not my personal income.

In short, I wasn’t managing my freelance income very well, and it took me years to figure out a better way. The good news? You can take the shortcut and start better managing your income right now.

Here are three ways to get started:


Many new freelancers learn the “you need separate accounts” lesson the hard way once tax season rolls around. Keeping your personal and business expenses (and income) mixed together in one account is incredibly confusing as your business starts to grow, and it can also increase your chances of being audited by the IRS.

If you haven’t already, open a separate business checking and savings account as soon as possible, and start using it solely for your business income and expenses. Here’s how I separate my accounts:

  • Business checking: All business income and expenses
  • Business savings: Business cushion and money set aside for taxes
  • Personal checking: All non-business expenses, like rent, groceries, and utilities
  • Personal savings: Emergency fund and money set aside for future personal expenses


Here’s another thing I didn’t understand for years: you can pay yourself a regular monthly salary even if your income, like that of most freelancers, takes a dip every now and then.

To get started, figure out your total profit (not your total revenue—see Part 1 of this series for clarification on this) for the past 12 months. Then, divide that by 12 to find your average monthly profit. This will be the amount you pay yourself every month.

Next, figure out when most of your personal bills (rent or mortgage, health insurance, utilities, etc.) are due every month. This will determine your payday, since you’ll want to pay yourself before your bills are due. Since most of my bills are due at the end of the month, I pay myself on the 25th of every month.

Now that you have your monthly paycheck amount and your payday, you can set up an automatic transfer from your business checking account to your personal checking account.

You may need to adjust your monthly paycheck if you have a few months of drastically lower income than you were expecting, but I’ve found that things even out pretty quickly. Try your best to give yourself that regular monthly paycheck no matter what—it can make a huge difference, both financially and psychologically.


Finally, make sure you're setting aside enough money for taxes, retirement funds, and a business cushion to cover future expenses. I find it easiest to do this at the end of every month; it takes me about 30 minutes, but the peace of mind it provides is priceless.

Here’s how I split up these essentials and give myself the gift of financial security:

  • Taxes (15%): At the end of every month, I tally up my revenue, or total sales, for that month and transfer 15% of that to my business savings account
  • Business cushion (15%): I take an additional 15% of my revenue for that month and transfer it to business savings to act as a cushion for future expenses
  • Retirement account (10%): An additional 10% of my monthly revenue goes into my retirement account

These monthly transfers are usually the lowest priority on our to-do lists, and as a result, they can fall by the wayside. Don’t let them! If you have fairly consistent monthly revenue, set them up as automatic transfers.

And there you have it! You’re well on your way to becoming a pro at managing your freelance income. Next up? Freelancer Finance, Part 3: Why It’s Time to Drop the “Feast or Famine” Mentality.

The information provided in this article is for informational purposes only, and it should not be considered legal or financial advice. You should consult with an attorney or other professional to determine what may be best for your individual needs.


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