Money management tips for a freelancer

Freelancing is no piece of cake. Who says that only businessmen are in risky business? We argue that freelancers are fighters of equal caliber. 

Imagine, not knowing if you will have enough money to pay the house rent next month? (especially when you start out)

Imagine, not knowing if you will have even one assignment/project for next month?
(Yes, it could be that bad)

Imagine, not knowing if you will even meet/see a particular client again?(Fluctuating clients is a thing boys & girls)

Imagined all of that? Good, now you can come back to what’s written in front of you. We feel that freelancers don’t get enough credit for what they do. The unpredictability of the cash inflow is the most burdensome thing about being a freelancer. Any tips to beat that? Yes, we have got some tips that we will happily share with you, you just have to promise us that you will use them 😉 Here goes:

1. Set different types of bank accounts.


When you are a freelancer, the first thing that you should do is to keep different bank accounts. Let’s call them a) Business account and b) Personal account. The money you get from freelance should all go into the business account. This is like the “employer” account. If you transfer all money from the business account into the personal account, the whole purpose of having two accounts get defeated. The idea is to pay yourself first.

Put your money into the personal account. Your personal account is like your “employee” account. This is the account you use to fund your regular expenses and pay bills. This is the account from which you make transactions on a regular basis. The business account is the main account, one with the highest inflow of cash. 

2. Think of yourself as a regular employee


As a freelancer, the mindset that will take you a long way is to think of yourself as a regular employee. The whole “pay yourself first” idea will help you with that. The amount you decide to pay yourself by putting it into your personal account is the amount that will be used for regular expenditures.

The main focus of this enterprise should be to ensure that there is an even distribution of money across the required time span for uniform availability. It should not be like one month you can fund yourself a trip to France and the next you barely have enough to pull through. A regular employee will never face such problems which is the ideal case so, live like one.

3. Diversify your Income sources


“Don’t put all your eggs in one basket” – how many times have you heard this? Actually to be fair, how many times have you heard this and ignored it altogether? If it were a number, we would say Infinity plus one. But have you ever thought about why people advise us to do this so much? Simple, because the more, the merrier. The more varied your income sources have, the more carefree you can be. 

Diversify your work profile for example, you could be a content writer, a social media manager and a graphic designer. That way, you don’t have to depend on clients in just one area. Also, you can try to earn “extra” income by renting out a part of your house (if it’s your own of course), or sell out stuff from your cupboard that you no longer need or use from time to time.                    

4. Emergency fund for all rainy days


We know that freelancing is tricky business. The erratic nature of the cash inflow is no hidden secret. There could be too many clients one month and not even one the next. This challenge of unpredictability needs to be met with smartness on your part. Planning ahead of time is the only way to beat unforeseeable financial circumstances that are a natural part of the freelancing business. After all, your monthly income can drop to zero (worst case scenario) but your expenses will not.

A good idea to go about is to have an emergency fund. This way even if you are out of business one month, you won’t be suffering to pay bills. Save at least 1 year worth of emergency expenses. This money should help you in times of dire financial emergencies. Set a higher benchmark if you know that you have expenses that require a higher amount of fund. Be it for 6 months or 1 year (or more), the point is that build yourself an emergency fund.

5. Budgeting will be your saviour


As a freelancer, the one practice that will take you a long way is budgeting. When you have a limited amount of income coming in, in a highly unpredictable way, budgeting can definitely save your day. The way this works is that you set a specific budget for every month. There is money that you put aside for your regular expenses. Then, there are needs that arise once every month – the house rent, electricity bills, and so on. Thereafter, you are left with the occasional shopping hauls, going to watch the movies, eating out, and taking short trips here and there. 

All these expenses, necessary or optional can be best managed when you have a budget plan in mind. Any expense above and beyond, can be made using your emergency fund. Bottom-line is, make a budget and stick to it!

6. The world of tax


Considering you are a “employee” who has no “employer” to pay the taxes. This means that you have to see for your taxes yourself. As a freelancer you will fall under the bracket of “self employed” and will have to pay taxes accordingly. As a freelancer, you don’t have the privilege of getting PF from your employer or TDS. As per the Income tax act, you will be taxed under ‘Profits and Gains of Business and Profession’.  

So, what you can do is other than your business account you can have a tax specific account in which you deposit the money to pay taxes. Let’s call this your account c) Tax account. You can file for tax deductions under section 80C of the IT act. The expenses that a freelancer can claim tax deduction against include:

  • Travel expenses
  • Expenses on office supplies
  • Property rent
  • Hospitality/ Meals expenses
  • Other expenses like software purchases

    7. Invest today for a secure tomorrow


As someone who has an unpredictable cash inflow, a good idea would be to start investing. When you invest you stay ahead of everyone in the game. You beat inflation by planning for it in advance as the returns generated ensure the growth of your money. Secondly, investment ensures that you build wealth over the longer term. The “power of compounding” makes money grow over long periods by regular accumulation of returns. Along with that, you can plan for your retirement (or early retirement) by regularly investing.

The idea is to invest not only for long term goals but also short term goals. Goals like a trip to France or saving for your favorite car (or other short term goals) can easily be achieved by right planning and regular investing. Also, investing in ELSS funds can help you in tax deductions which means less money goes into paying taxes. All these reasons make investing a very good idea for a freelancer.

8. Freelance expenditure vs. Personal expenditure


Make sure that all the money you use because of your freelance works should be taken out from your freelance account. If you meet a client at a coffee shop for work and need to pay money for the coffee or you have to travel out of town to meet a client, then ensure that this money comes from the professional account and not from your personal account. This bifurcation will make it much easier for you to make bills and do calculations when it comes to your own expenses. 

The clear division of two means better money management. Better money management is all you need to lead a happier and more successful life!

So, this concludes the list of top 8 financial tips for freelancers. Easy to implement, these tips will ensure you have enough financial security – Today as well as Tomorrow.
HAPPY FREELANCING (and saving!) 🙂


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