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Financial Planning for Freelancers

Jordan Bishop • June 2, 2023

Young brunette smiling happily while sitting at table with laptop working remotely.

Financial planning is critical for freelancers. Learn how to create and follow a budget, track your income and expenses, plan for taxes, save for emergencies and retirement, and invest wisely.

As a freelancer, contractor, or gig worker, you know the challenges of having an irregular income when budgeting and planning your finances. But you can learn how to manage your money well, even without a steady paycheck.

Whether you’re a freelancer working from home, from a coworking space, or are constantly on the move, here are some tips and tools for financial planning for freelancers.

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Budgeting when your income fluctuates

The fact that you don’t have a fixed income doesn’t mean your financial planning should be unpredictable. One of the first things you need to do as a freelancer is to understand your income patterns. You should be able to answer the following questions:

  • How much do you earn on average per month?
  • How much does it vary from month to month?
  • What factors affect your income, like seasonality, demand, or competition?

Once you have that down, you can start crafting your budget. A budget helps you track your cash flow and allocate your money to different categories like rent, food, utilities, entertainment, savings, and more.

Budgeting for freelancers — The 50/30/20 rule

There are different ways to create a budget as a freelancer, but one of the most popular methods is the 50/30/20 rule. This rule suggests dividing your income into three spending categories. You should spend:

  • 50% of your income on needs, such as housing, food, transportation, and insurance
  • 30% on wants, such as hobbies, travel, and dining out
  • 20% on savings, such as an emergency fund, a retirement account, or debt repayment.

You may want to adjust these percentages depending on your priorities and how irregular your income is. For example, you may want to save more than 20% if you have a low or unpredictable income; or spend less than 30% on wants if you have high fixed expenses.

Zero-based budgeting for freelancers

Another way to budget with an irregular income is to use the zero-based budgeting method. This method requires you to assign every dollar of your income to a specific category or goal until your income minus your expenses equals zero.

The advantage of this method is that it allows you to adjust your budget every month according to your income and needs. However, it also requires more time and effort than other methods and may not work well if you have an exceptionally variable income.

Income tracking tools for freelancers

One of the main aspects of financial planning for freelancers is tracking your income. Tracking can help you to:

  • Monitor your cash flow.
  • Invoice your clients accurately and on time.
  • Avoid missing payments or undercharging for your work.

Many tools and apps can help you track your income as a freelancer:

  • Wave: It’s a great tool that’s free to use for most features, including invoicing, payments, expenses, and reports.
  • Mint: Helps you manage your personal finances, budget, and goals with bank synchronization, expense categorization, and more. This is a decent choice if you don’t mind third-party ads and offers.
  • FreshBooks: Offers a comprehensive free plan for freelancers with less than $50K in annual revenue but has limited third-party app integrations.
  • QuickBooks: This is the most user-friendly and popular accounting software for freelancers and small businesses. Its only downside is that it doesn’t let you compare your bank statements with your accounting records with the cheapest plan. This feature, called bank reconciliation, helps you identify any discrepancies or errors in your transactions.
  • Excel: Allows you to customize your spreadsheet according to your preferences and needs. The only issue is a steep learning curve for advanced features.

The importance of budgeting for freelancers

As a freelancer, budgeting is essential for managing your money and achieving your financial goals. Budgeting helps you:

  • Plan ahead for your expenses and income.
  • Avoid overspending.
  • Save money for emergencies or big purchases.
  • Pay off debt or invest in your future.
  • Track your progress and adjust your plan as needed.

Budgeting also helps you reduce stress and anxiety about your finances. When you have a clear plan for your money, you can focus more on your work and enjoy your life.

Planning for taxes as a freelancer

Unlike employees, as a freelancer, you don’t have an employer who withholds taxes from your paycheck and pays them on your behalf. Instead, you have to calculate and pay your taxes yourself.

Estimating taxes is also slightly more complicated for freelancers. You must pay two main types of taxes: income tax and self-employment or FICA tax. Additionally, you may be able to deduct certain expenses from your income related to your work, helping you lower your taxable income.

That said, saving 25-30% of your income in a separate bank account is a general rule of thumb to have enough set aside for taxes.

When should you pay taxes as a freelancer?

Another difference is that freelancers pay taxes quarterly instead of annually. This means you need to make four payments throughout the year based on your estimated taxes. The due dates for the 2023 quarterly payments are:1

  • First quarter: April 18
  • Second quarter: June 15
  • Third quarter: September 15
  • Fourth quarter: January 16, 2024

So, as a freelancer, you must stay on top of your taxes all year. This can be a hassle on a complex and variable income, so hiring an accountant to file taxes for you may be worth the investment.

Get your federal tax refund up to five days early* when you direct deposit with Chime and file directly with the IRS.

Sole proprietorship or LLC?

Freelancers can choose to operate as a sole proprietorship or a limited liability company (LLC).

sole proprietorship is the simplest and cheapest business form for freelancers. This choice means that you and your business are the same entity for legal and tax purposes.

On the other hand, an LLC provides some legal protection and tax benefits the former doesn’t. You create a separate entity for your business distinct from yourself for legal and tax purposes. Your personal assets won’t be seized or sued if your company faces legal issues or debts.

The S Corp

The main tax difference between a sole proprietorship and an LLC is how you pay self-employment tax. As a sole proprietorship, you must pay self-employment tax on your entire net income from your freelance work.

As an LLC, you can choose to be taxed as an S corporation. An S corporation is a special tax status that allows you to pay yourself a reasonable salary from your business and pay self-employment tax only on that salary.2 The rest of your income is taxed as dividends at a lower rate, helping you save money on self-employment tax.

Finance planning for freelancers — to-do list

Financial planning for freelancers is an ongoing process, not a one-time event. Here are some additional tasks to stay on top of your finances as a freelancer:

  • Review your budget every month and compare it with your actual income and expenses.
  • Save at least 10% of your monthly income for emergencies in a high-yield savings account.
  • Save at least 10% of your monthly income for retirement in a tax-advantaged account, like an IRA or a solo 401(k).
  • Review your insurance coverage annually and ensure you have adequate protection for yourself and your business.
  • Pay off high-interest debt as soon as possible.
  • Review your financial goals yearly and ensure they are still relevant and realistic.

Freelancing can help you achieve financial freedom

To succeed as a freelancer, you need to plan and manage your finances well, pay your taxes, save for the future, and review your plan often. If you do, you’ll be well on your way to financial freedom.

If you’re considering starting a freelance career and have a knack for writing, read our guide on how to become a freelance writer. You’ll learn the five steps to start your writing career and boost your skills to make more money.


What is the best budget for freelancers?

There is no one-size-fits-all budget for freelancers. Your best budget depends on your income level, expenses, goals, preferences, and situation. However, a general guideline is to use the 50/30/20 rule or the zero-based budgeting method to create a realistic and flexible budget that suits your needs.

How do I set up a financial plan as a freelancer?

Freelancers should set up their finances in a way that helps them track their income and expenses, pay their taxes, save for their goals, and protect their assets. Some of the steps you can take as a freelancer to set up your finances are:

  • Open a separate bank account for your business and use it for all your income and expenses related to your freelance work.
  • Use a budgeting or accounting app or software like Wave, Mint, or FreshBooks to create and monitor your budget, create and send invoices, track payments, manage expenses, and generate reports.
  • Use a tax app or software to calculate and pay your quarterly taxes.

How to budget irregular income?

The three steps to budgeting with an irregular income are:

  • Estimate your monthly income and expenses.
  • Prioritize your expenses from most to least important.
  • Review your budget every month and make changes if necessary.

What is considered irregular income?

Irregular income is any income that isn’t fixed or predictable. It can vary from month to month or even from day to day. Some examples of irregular income are freelance work, commission-based work, and tips or gratuities.

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* Early access to direct deposit funds depends on the timing of the submission of the payment file from the payer. Federal tax payment files received from the IRS may be received up to 5 days early (based on data from the 2020 tax filing season). Chime makes no guarantee over when files are sent by the IRS and funds can be made available.

1 Information from Intuit's “Self-Employed? Quarterly Tax Date Deadlines for Estimated Taxes" as of May 20, 2023:

2 Information from the IRS's “S Corporation Compensation and Medical Insurance Issues" as of May 20, 2023:

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