A Guide To Building Financial Stability as a Freelancer

Freelancing doesn't have to mean financial instability. Here are some pro tips to build a reliable financial ground floor for your freelance business.

By Jenni Gritters • Dec 23, 2021

The phrases “financial stability” and “freelance business owner” might feel diametrically opposed to one another. After all, leaving a full-time job and working gig-to-gig means less stability, right? It’s true that running a freelance business means shouldering more risk, and you’ll have to get used to paychecks that land in your bank account with an irregular cadence. But that irregularity doesn’t mean you have to embrace financial instability.

Here’s where to get started with building a stable, reliable financial ground floor for your freelance business:

Pay off any high-interest debt

Before we talk about savings, it’s important to discuss debt. According to one report, nearly half of U.S. adults carry some kind of credit card debt, and that number has only increased since the start of the pandemic. Credit card interest rates typically clock in at an average of 18%, which means you can very quickly rack up a whole lot of debt, if you’re only paying the minimum balances on your cards each month.

The first step to building financial stability is to knock down these debt numbers, because they’ll just keep growing over time given those high interest rates. If you can, start paying the entire balance on your credit cards each month. Consider limiting your credit card use to just one card, and try to put at least a small amount of money toward your remaining debt each month — even $100 per month is a good place to begin! You can also consider refinancing some of your loans, since interest rates are currently at an all-time low.

It’s worth noting that student loan debt is typically considered “good” debt. We’ll talk about this later, but especially if you have low interest rates, you can keep paying those balances on a monthly basis.

Start budgeting

If you don’t know where your money comes from or where it’s going each month, it can be tough to feel in control of your finances. If you don’t have a process of tracking your expenses each month, consider setting one up. If you have a Lili account, use your income and expense report to get a sense for how much you’re bringing in, on average.

Build an emergency fund

As a freelancer, you are more prone to having slow months and busy months — boom and bust, as the experts like to say. You want to protect yourself during those slow months, and the best way to do this is to set up an emergency savings account that you can pull from, just in case something happens. If your car breaks down, or your pet needs emergency surgery, or you owe more tax money than you planned this year, an emergency savings account can help you weather the storm.

Most financial planners recommend putting between 3 to 6 months of living expenses in your emergency savings account. These are basic living expenses — what you’d spend if you were only covering the necessities. Figure out what your number is, then set up a savings account, give it a name, and start to port over a bit of money each month into that account. With Lili, you can open an Emergency savings account with as little as $1 per day.

If you’re using Lili, you might also have a larger tax refund this year since you can easily track your deductions and expenses. Consider putting that extra amount right into your emergency savings account. Some people also save their tips or designate work with one client as money that goes straight into their emergency savings account.

Separate out your business and personal finances

One of the biggest game changers in my freelance business was dividing out my business income from my family’s general finances. Each month, my paychecks drop into my business bank account. I transfer some money over to my family’s account, to cover our monthly expenses, but any other money I’ve made stays in my business bank account, to cover me during slow months. For example, if I’m making $10,000 this month but only bringing in $3,000 next month, the paychecks will even out over time. (And don’t forget to put money aside for taxes, too!)

Before Lili, the only way to achieve this kind of delineation was to open a separate business account, which meant dealing with higher and extra fees. But with a Lili account, you can now manage your business and personal finances in one place, with clearly separated balance tabs– for free!

Start to save for retirement

When you have a full-time job, you typically have a built-in benefits package — a 401K for retirement! Health insurance! But when you head out on your own as a freelancer, you have to figure this all out for yourself.

After you’ve filled up your emergency savings account, it’s time to turn to your future. Many financial planners recommend starting with a ROTH IRA, which had a $6,000 per year maximum contribution limit in 2020, but there are other options with higher limits. Now that you’re in the habit of saving, can you put $500 per month into a high-interest savings account, then invest it in a ROTH IRA at the end of the year? Future You will thank Current You. As you have more money to invest, consider consulting a financial planner to talk about investment options beyond a ROTH IRA.

Look ahead toward your big goals

What else do you care about? Do you want to fund your child’s education, or buy a house, or purchase a new car, or pay down all of your student loans? Once you’ve filled up your emergency savings account and set up a way to invest in your future, consider tackling your other financial goals. A high-interest savings account can be a great place to start. Name the account to match your goal and start to put small amounts of money each month toward your goals.

As a freelancer, the key to building stability is knowing where your money is coming from, and taking ownership over where it’s going. Setting clear financial goals can empower you to use your money strategically. Because after all, you’re running your own ship now. You’re the CEO, the CFO, and the head of HR. You get to decide what route you want to chart.

Written by
Jenni Gritters

Jenni Gritters is a freelance writer and editor based in Seattle. She’s written for the New York Times, the Guardian, Outside magazine, and many other places, and co-hosts the freelance business podcast, The Writers’ Co-op. Read more about her work at jennigritters.com.

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