How to Prepare Financially for Your Freelance Career

How to prepare financially for your freelance career

Last weekend, I grabbed coffee with one of my girlfriends, who  is considering trying out her freelance career. She asked me a few questions about how I prepared and what I would have done differently. I’m particularly grateful for a few things I did to prepare for my freelance career. Please note that I am not an accountant, and this post is a behind-the-scenes into how I planned to make the jump!

For some context, you might want to read more on this post on I became a freelancer. When I quit my full-time job, I did not have a brand name or even a website. At my full-time job, I was working about 14-15 hour days, so I only had time to work on my side hustle on the weekends (hence, #SMARTERSATURDAY!). Even though I quit my full-time job pretty suddenly, I used the year leading up to it to prepare.

Start A Separate Bank Account | Build It Up

Any money that I made from my freelance side-hustle, I put in a separate bank account. I wanted to see how much income it generated per month, and this bank account clarified what came in and what went out. I did not pay myself out of this account immediately. Instead, I focused on building up about six months of living expenses in it. These savings acted as a cushion in case business was slow when I went full-time, but it also allowed me to set a fixed income for myself.

Follow A Payment Schedule

Once I built up my savings and analyzed how much money I brought in on average per month, I set a fixed amount to pay myself every two weeks (like a regular job). If business slowed for a month, I could use my cushion to maintain my same monthly income. On the reverse, I gave myself raises after my monthly income increased! Results-based raises! Yaya!

Reduce Expenses

Similar to a retiree, I have become accustomed to living on a fixed income (kind of). When I first started, I was not making much money. To avoid debt, I significantly reduced my expenses, which included going out to eat less, buying fewer clothes and things for the home, and eliminating any superfluous expenses. I realized that I could not have or do it all. If working for myself was my priority, then reducing costs was a choice and lifestyle decision I was willing to make. I do not view it as a sacrifice because I found the whole process quite liberating.

I use Mint to track my personal accounts, and Quickbooks for self-employment to track my business expenses. Each Friday, I go through my accounts. Reviewing my expenditures made it pretty easy to eliminate superfluous expenses. Just for perspective, for most of 2013-2014, my average monthly expenses were less than $1000 (including rent, utilities, food, etc.). I split rent and utilities with my boyfriend. Every few months I would buy new clothes or things for the home, but those expenses were not even close to happening monthly.

No Debt

I’m a big fan of Ramit Sethi’s I Will Teach You To Be Rich and his financial philosophy. He advocates for paying off your debt before you start focusing on saving. When I first started thinking about becoming a freelancer, I had about $10k of student loans from my master’s program, but no credit card debt. I decided that I would focus on paying off that student loan, as I did not want it to loom over me. I paid off the loan as soon as I could, then focused on building up the savings to set my regular payment schedule.

Sethi also discusses budgets (or lack of them) and diversifying income sources – two things that I’ve found very helpful in my career. With budgets, he’s surprisingly not an advocate for it, but instead, he encourages people to find the one thing that they want to spend money on, and then not spend money on other things. He gives an example of a guy who spends over $20k per year on restaurants, but then his living and other expense are very reduced. This philosophy along with Kondo-ing has helped me tremendously in finding those things I value.

In my business reports, I have shared details on how I’m slowly working towards diversifying my income sources. This diversification will be my focus for 2016.

So, that’s how I financially prepared myself for my freelance career. Following a payment schedule and reducing my expenses are probably the two most significant factors. If you’ve taken the jump to full-time freelance, how did you prepare? What advice would you give someone considering making the jump?

  • Meet Lindsay Humes

    Hi! I’m the designer and owner behind White Oak Creative. I partner with creative entrepreneurs, lifestyle publishers and content creators to design the best brand identity to grow their audience and brand. My blog is full of resources on Branding, WordPress, SEO, and more!

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    17 thoughts on “How to Prepare Financially for Your Freelance Career

    1. Adam Zetterlund

      Hi Lindsay,

      Found this post through Twitter—as a freelancer myself, I love these tips, especially paying yourself a set salary.

      I’m also a Quickbooks Self-Employed user, but I’m curious how you have your system set up? I find I tend to cross-pollinate with my business expenses, so I’ve linked almost all of my financial accounts (various credit cards, bank accounts, etc) to the system and I end up manually sorting through all of my expenditures and classifying them as “personal” or “business.”

      Is your Quickbooks linked exclusively with your business bank account? I’d love to streamline my current accounting method, because sorting everything using Quickbooks to manually classify everything is time consuming!

      Thanks for the great post!

      Reply
      1. Lindsay | White Oak Creative Post author

        Great question, Adam! Yes, I have completely separate banking accounts (and credit cards) for personal and business. I stick strictly to using my personal for just personal and my business for just business. Quickbooks is only connected to the business accounts. I do not monitor my personal expenses as rigorously as I manage my business ones, so Mint is better for personal. Have you set up rules with Quickbooks? I’ve found it automates reoccurring expenses so that I don’t have to mark them! Thanks for your comment!

        Reply
    2. Demetria

      Hi! Thanks for this article! I’ve started my blog and I’m looking to grow and monetize it. I’m thankful for little gems like this article because in my busy life, its easy to miss the small steps that make a big deal in the long run. Stay awesome!

      Reply
    3. Matthew Cooper

      Excellent post, Lindsay 🙂

      I’m curious to know if you have a “business checking” account. If so, what bank/account do you use?

      As a fellow fan of Sethi, I’m steering clear of big banks. Avoiding crazy minimums, maintenance fees, etc. Which leaves credit unions and online banks. Do you have any suggestions for business checking accounts in particular?

      Love your blog. Will definitely stay tuned.

      Happy new year,

      Matt

      Reply
    4. Ashley L

      I co-sign creating a second account while you’re preparing. I did that too. Although I’ve opted, for now, to continue my full-time career and freelance part-time (a goal is to buy a home for cash so I’m doing it until I hit burnout) that was a huge part in really “seeing” our new potential financial status. I’d recommend that step to anyone.

      Reply
    5. Hillary Roberts

      I will have to read I Will Teach You To Become Rich. I built my business while on disability for shizoefftive disorder. I am no longer on SSI but people seem to think that it takes a lot to start your own business when really it does not. Just time and a lot of hard work. Great post!

      Reply
    6. Darline

      Hi.

      I started off the year as a full time freelancer. I didn’t quite prepare as well as you did for it since I currently have one steady and consistent client. However, I do want to expand. I was curious to know what types of expenses you charge to your business account. I know as a freelancer you are able to write off a lot of expenses such as food, gas, cell phone, etc.

      Another question. Since my freelance gig is my only income, is it still necessary to have 2 separate accounts?

      Thank you in advance for your advise! This blog was great!

      Reply
      1. Lindsay Humes Post author

        Thanks for your comment, Darline! My business expenses include my cell phone, anything I spend on social media advertising, Google Apps, and anything I use to run my business. I don’t put food or gas expenses on it; I keep it strictly to business. It’s completely your call whether you want to have two separate accounts. My freelance gig is my only income, but it is a business and the business pays me. It is easier for me to track personal and professional financials by keeping it separate.

        Reply

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