There's a lot of bad financial advice on the internet.
Whether it's wrong or inapplicable, few things you read apply to your situation as a self-employed creative.
This article is the opposite of that.
I've been a freelancer & a financial planner for the past couple of years & these 10 pieces of advice are formed from firsthand experience:
This is the most common mistake, and the best piece of advice I have.
As a simple rule of thumb, every time you get paid from freelance work, set aside 25-30% of what you got paid.
Finish a project for $1,000? Transfer $250 to a separate savings account as soon as you get it.
Taxes suck but if you owe them, that means you made money - which is something to be proud of.
If you expect to owe more than $1,000 in taxes for the year, you need to be paying them to the IRS quarterly. Here's an example of the estimated tax liability for $45,000 annual self-employed income:
The true numbers will depend on your situation, but you typically owe $1,000 in taxes when you reach $10,000 of annual income (not tax advice). Here’s an article I wrote about how to know if you should be paying quarterly taxes (and how to pay them).
Friction creates inaction.
A clunky invoicing tool, bad bank, and messy accounting system will create a sense of anxiety around using them.
You’ll begin to resent invoicing and logging into Quickbooks will feel like taking the ACT again.
Think through your business and map out every place where a financial tool is needed. To help with this, here's my main financial tech stack for my freelance business:
Further reading: 11 Essential Financial Tools for Creators & Freelancers
Once you’ve got a proper tech stack, automate everything that you can.
This should include:
You get paid $3,000/month from 3 retainer clients. When the invoices are paid, you first need to make sure your regular business expenses are covered (these expenses should be automated as well). After that, since these clients are on retainer, you know how much income you have each month. You can then set an automation to send payment to yourself, maybe $2,000.
You can either withhold taxes automatically as soon as you get paid from a client, or after you pay yourself. I like to do it when I get paid from a client because I’m setting aside a *little* bit more than I should. Either way works, you just need to pick a way and stick with it.
Whether it’s bi-weekly or monthly, don’t wait until tax season to do a year’s worth of bookkeeping.
Don’t do it for me - do it for your future, next-tax-season self.
Set aside 15-30 minutes, log in to your accounting tool of choice, and categorize the most recent transactions. When you stay up-to-date with your records, it never becomes overwhelming.
I’m not an accountant so I won’t give tactical bookkeeping advice here, but I highly recommend checking out Clara CFO’s YouTube channel for self-education:
A tax write-off (aka tax deduction) is an expense that you can use to lower your taxable income.
A real life example: If you made $80,000 last year as a freelancer and you had $15,000 in eligible business expenses, you would be able to “write off” that $15,000 against your taxable income ($80k), so that you’d only owe taxes on $65,000.
Once you understand what they are, tax write-offs are relatively straightforward.
For an expense to qualify as a write-off, the IRS states that it must be ordinary and necessary for your business.
Unfortunately, that means you can’t write off a year’s worth of DoorDash deliveries to your home office.
Here's a list of the most common write offs for freelancers:
When you’re self-employed, you lose access to the bundle of benefits that come with a 9-5 job. The most noticeable is health insurance..
Depending on your situation, you may be able to get on your spouses plan and save several hundred dollars per month instead of getting your own plan. Insurance can be fairly complex, so here's a guide that breaks down terms to know, every type of health insurance, and how to get your own.
Aside from the health insurance, this is a quick breakdown of the most common insurances for freelancers:
As a creative, your biggest asset is your skillset.
There's a process you follow to create a final product.
So by improving the skills that go into that process, you can get better at the things you love and ideally make more money.
For example, I've gone from charging around $1,500 per website design over a year ago to now having a minimum of $4,000.
This isn't "financial advice", but growing your income is the BEST way to have more flexibility in your finances.
You can only cut so many costs, but your income potential is unlimited.
Invest in it.
I’ve written about it a lot, but I’ll always mention investing for the long-term. Whether you believe in traditional retirement or not, investing gives your future self freedom and flexibility.
You don’t need to put every single extra dollar into a 401(k). But you do need to be aware of what you’re working towards and how you’re going to get there.
To help with this, here are some of my top articles about investing when you’re self-employed:
How many times have you put an unexpected expense on a credit card, then stressed about how you were going to pay it off? It’s an awful feeling. I put my rent on credit for 6 months when I was starting my business and the amount of stress and anxiety it caused was shocking.
With a proper cash reserve, you won’t have to go through these situations.
Car troubles? Oh well. Savings can cover the repairs.
Lost a client? It’s okay. You can continue paying your bills for 6 months even if you lost ALL of your clients.
Unpaid invoice? No worries. You can still cover all of your regular expenses.
Out of all the pieces of advice here, after setting aside money for taxes, focus on this one.
Stack some savings and watch how much more confident you become.
Once you’ve built good financial foundations for yourself, don’t be afraid to hire help.
This could be a bookkeeper, accountant, business coach, or financial planner. Whatever you believe would help most, make sure you have an outcome in mind before hiring them. You should be able to tell if the investment in the service was worth it.
For me, I like to pay professionals to do their job. I don't file my own taxes and I don't do all of my business registrations. Some things I feel comfortable doing and I like saving money, but I like to pay for peace of mind as well.
Know your strengths & weaknesses and spend the money on assistance when you need it.
Unless you have a core set of retainer clients, you'll have to manage multiple client relationships to ensure that you're getting paid on time.
Every freelancer is different and some clients will have their own payment terms, but when it comes to invoicing, the quicker you get paid, the better.
Standard terms are Net30, which means the client has 30 days to pay the invoice before it's considered overdue. Depending on how you write your contracts, you may charge interest or late fees on overdue invoices.
You may also choose to set your own payment terms, such as Net14 or Net21.
Long payment terms and delayed invoices can severely effect cash flow, especially if you haven't built a 3-6 month cash reserve, which is why it's so important to dedicate some time weekly or monthly to review your invoices and make sure you're getting paid on time (and invoicing on time).
Rather than using a debit card or direct withdrawals for expenses, you can charge your credit card so that the money isn't coming out of your account right away.
This can make it easier to bridge low income months, but you always want to be sure that you're aware of your credit balance and aiming to pay it down as quick as possible.
These are a few things to keep in mind when getting & using a business credit card: