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Tips for freelancers and entrepreneurs to pursue financial stability—what to know, what to do, how to do it, and what to avoid.
Freelancing and entrepreneurship can be incredibly rewarding, offering the opportunity to pursue your passions and shape your own destiny. Whether you're a writer, designer, consultant, or startup founder, being your own boss can be exhilarating and liberating. But with that freedom comes great responsibility: the responsibility of managing your finances.
For many freelancers and entrepreneurs, the financial stability a steady paycheck brings can often diminish with uncertainty from fluctuating income and irregular expenses. This can make it challenging to plan for the future and achieve long-term financial stability. But fear not! There are plenty of strategies and tips you can implement to help you stay on top of your finances for your financial future.
In this blog post, we'll dive into the world of money management for freelancers and entrepreneurs.
Create A Solid Foundation
As an independent contractor or business owner, one of the first things you’ll learn is that there’s often an absence of stability. Without a salaried W2 position, your income becomes uncapped but uncertain—prone to fluctuate depending on market conditions, client relationships, and a slew of other stimulants that can change instantly.
That’s why it’s critical to have a strong foundation beneath you, to help you withstand the winds of uncertainty coming your way. How do you achieve that, though?
Money must-haves for the self-employed
Budgeting
It’s much harder to make a budget when you don’t know what your income will be in any given month. Nevertheless, letting this keep you from budgeting would be a grave mistake. As a self-employed person, your budget should account for all your fixed expenses while leaving the ambiguous, discretionary ones up to what happens that month. Ultimately, your goal is to achieve a progressively higher income that can absorb all of those monthly discrepancies without flinching.
Saving
The median savings balance for Americans under 35 was just $3,240 in 2022, a lackluster amount that wouldn’t support most of us for long. Savings are crucial for those self-employed, especially at the beginning. Because of the inconsistent nature of your income, savings are a vital fallback you should anticipate needing at some point. Consider a cash cushion of 3-6 months of living expenses before diving into the uncertain world of entrepreneurship.
Investing
Self-employed individuals don’t have the luxury of having an employer-sponsored retirement account, employer match, health insurance, or other benefits that come with having a normal W2 position. Nevertheless, this shouldn’t stop us from investing in our future. We understand that at times, especially early on, there might not be room for retirement savings in the budget, but having a goal is the key here. If you don’t make enough to contribute to a retirement account quite yet, plan how to get there. Outline the details of how much you’ll need to contribute once you get started.
Handling taxes
In the U.S., self-employed people and small-business owners get to experience the joys of paying self-employment taxes, which is, of course, an excellent experience (we’re joking). Those who fit this description may not only pay more in taxes but also be expected to make quarterly, estimated payments to the IRS based on their expected income. Falling behind on something like taxes is a real pain, so it’s important to read up on this, fill in any knowledge gaps you might have, and start budgeting for them ASAP.
Handling debt
Paying down debts becomes even more difficult if your income is unpredictable, and this can have negative implications on your credit. If you have bad debts hanging around as a freelancer (think: high-interest credit card debt), this can really hamper your personal financial growth and your business. So, make any payments you can, when you can, after you’ve paid your essentials and established an emergency fund.
Health insurance
One of the perks of working at an established company is usually health insurance. Why? Because the average monthly health insurance premium in the US is roughly $560. That’s an expensive burden that an employer-sponsored plan can make much lighter. As a self-employed person, you’ll need to do some hearty shopping and budgeting to make sure you can find a plan that works for your needs and budget.
Considering goals
Don’t neglect your personal or business-related goals throughout your gig-working journey. If you’re already saving and investing—and still have leftover funds every month—it might be time to consider allocating more funds to your other goals.
Get Organized
Without a solid plan, routine, and infrastructure, your finances can quickly and easily fall into disarray as a freelancer. But then again, that’s why you have Pocketnest! (Psst, log in and check in on your plan and to-do list!)
Create sustainability and order
Form a habit
Research shows that it takes us around 21 days to form a habit. The good news? While it might be difficult for a bit, your consistency will give way to simplicity as you ingrain those habits into your daily routine. What habits are we talking about? Tracking expenses and income, transferring money for taxes, investing for retirement, setting aside savings, paying down debts, and anything else that helps you run a smooth business.
Keep track
As a self-employed individual, you’re the emperor of keeping up with stuff. You’ll need to keep track of your own income and expenses, business expenses, client relations, estimated tax payments, and a lot more. This might seem finicky and arduous at first, but doing this habitually will make your life so much easier at the end of the day.
Your infrastructure
Sure, there’s a lot to keep up with, and jotting it all down on a sticky note just isn’t going to work. You need to develop an infrastructure, both online and offline, that works best for you and your organizational styles. Whether it’s spreadsheets, documents, photos, little notes, or whatever it may be, the key is to find something that works for you and stick with it.(Hey, we recommend logging into Pocketnest and letting us do all that hard work for you!)
Conclusion
What is there to learn from all of this?
The freedom and upside potential of being a business owner comes at a cost — taking full ownership over your personal finances and staying on top of your $h!t!
Luckily, this pathway will force you to become extremely proficient at money management, and those skills will subsequently improve your personal finances over the long run. It might be tough initially, but your labor will eventually bear fruit.
We’re here to help you reap the rewards of all that hard work. Consistency is required to get there, so here’s a friendly nudge to remember to log into Pocketnest regularly, update your to-do list, keep an eye on your transactions, and stay en route to financial wellness.