9 Steps to Becoming a Financially Savvy Freelancer

By Allison Eklund

Allie Eklund
Allie Eklund

So you want to fly solo. Why not? Being your own boss means creating your own work schedule, approving your own vacation time, and perhaps opting for a pants optional policy at your office which just may double as your bed. Most of all, being your own boss means deciding how much you want to make and how hard you’ll work for it.

Today, female freelancers are finding success all over the world. Forbes reports that “entrepreneurial activity by women has increased 7% across 61 economies since 2012.” Fast Company’s Sara Horowitz pointed out some possible reasons that “53% of full time freelancers are women”…traditional workweek constraints, the good ole’ boys club, and perhaps most notable, the glaring wage gap. Horowitz points to one study which found that “women are far more likely than men (71% vs. 51%) to freelance in order to pick up extra money, underscoring the persistence of the wage gap.”

Other than true grit, there are important financial and business considerations when diving into the world of freelance. Deciding to quit your day job and start your own full time business means quitting your regular payday and losing your benefits package. On top of that, it also means putting responsibilities you’ve never thought of on your plate.

Suddenly, you find yourself wearing all hats. You’re not only the creative director or CEO, but the sales director, accountant, the IT department, HR department. You may play janitor one moment, and then chief financial officer the next. You will have to write a business plan, create and monitor a balance sheet, and likely pay taxes you had no idea existed.

So, while I can’t help you in the human resources department, and most definitely am not here to tell you how to code your website- this article offers financial context and a little motivation as your business dreams come into fruition.


1) Prepare before the plunge.

It’s smart to create a cash flow cushion for the slow months that will likely happen in the beginning. This will take either dipping into savings, or stocking up for several months before you make the switch. Laura Braden-Quigley, a public relations specialist recommends, “Save at least three months of income. Clients don’t typically auto-pay twice a month like an employer so you need an extra cushion in case of late payments.”

Paying yourself a fixed salary consistent with your non-discretionary expenses is one way to handle the potential of uneven cash flow. Most importantly, don’t go into freelancing with the expectation of an automatic glamorous lifestyle. The beginning can be tough, and you need realistic expectations.

2) Make networking your new hobby.

Networking and business building beforehand comes highly recommended. Having “a few clients secured before you make the leap” can make for a smoother transition, advises Braden-Quigley. Another local social media consultant, Maria Hill, explains how important it is to learn the art of effective networking. “I started showing up to every professional networking event I could,” attests Hill. The more you create your brand, get your name out there, and develop relationships, the greater your opportunities will be. Photographer Mary McCune encourages to “never underestimate the power of word of mouth.” Having credibility, experience, and name recognition will help when pitching your contract or retainer agreement with a potential client.  

3) Separate your business expenses.

Most sole proprietors have a business only bank account. “Use one bank account and debit card to pay for all business expenses so they are all in one spot and trackable,” says Hill.  Speak with local banks and credit unions to find the best account options for your business needs. If you’re starting with nothing, it’s wise to ask what fees a bank account may incur.

4) Prepare for tax season ahead of time.

When you become self-employed, you immediately tack on higher taxes, because of the 15.3% self-employment tax, a combination of both Medicare and Social Security taxes. As an employee of a company, your employer pays half of this tax for you. If you become your own employer, you pay the whole tax. Not sure what you will pay in self-employment tax? Bankrate.com has a self-employment calculator. That doesn’t include your California State Income Tax or your Federal Income Tax; check out what your tax bracket is by clicking on those links. One freelancer shared that she sets aside 40% for taxes. Yikes! Time to look into tax saving tactics, like deductions.

Tracking receipts, expenses, and miles can help make a difference on your yearly tax return. Local photographer Stephanie Rudy explains that “Monday is my admin day, where I sort through expenses, write-offs, invoices, et cetera, to ensure my ducks are in a row.” Another idea? Keep an excel log in your car to remind you to log those miles. For more on tax deductions, check out Turbo Tax’s list of deductions.

Making accounting mistakes can be extremely costly. If bookkeeping isn’t you thing, consider contracting this out. Braden-Quigley believes in hiring “the best accountant your money can buy,” because they can “help you navigate the tax system and ensure you’re deducting as much as possible.” If hiring an accountant is a few years down the road, learning QuickBooks is another option for your accounting needs. QuickBooks offers a cloud based accounting app that can help you prepare for taxes on a quarterly basis and track all your business expenses.

5) Your retirement planning options just expanded.

It’s nice to think you keep all your revenue as a business owner, but the reality is you don’t. Uncle Sam is now entitled to a bigger portion. Another helpful way to save more of what you make is by utilizing tax-qualified retirement plans designed for small businesses. A SEP (Simplified Employee Pension) IRA allows self-employed business owners to stash away much more than a Traditional IRA or Roth IRA. Known for being simple to set up, SEP IRA’s are a “user friendly” option.

Another option specifically created for the solo-practitioner is the Solo or individual 401(k) plan. Great for several reasons, one particularly attractive aspect of a solo 401(k) is the loan provision. If you must withdraw money in a time of need, a solo 401(k) may allow participants to take a loan, as opposed to taking a distribution that is not only taxable, but may also incur a penalty if you are below age 59 ½.

6) Insurance is ever more important.

When employed by a big company, there is usually risk management in place that would cover you or the company in a disastrous or unforeseen event. Once you’re the owner, your skin is now in the game. As the owner, the risk, just like the reward, is now all on you.

Professional liability insurance exists for a reason. Also known as “errors and omissions insurance,” E&O insurance can protect business owners from things like alleged negligence, copyright infringement, and claims arising from your professional services. Even if you are thinking you follow the rules, it doesn’t really matter because other people don’t always follow the rules, and we are all just human and susceptible to making mistakes. However, we live in a world that is trigger happy when it comes to lawsuits. Think of it this way: would you forego buying auto insurance because you are a perfect driver? Probably not. It’s often the other people on the road you must look out for.

At the very least, spend some time understanding your risks and how to protect your business and yourself.

7) Applying for certain insurance may be harder.

Life insurance is commonly part of a benefits package from large scale employers. This is called group insurance. Your individual insurability is not a consideration in group insurance. And think of it this way, if you are buying something with a group rate, 9 times out of 10 it’s a better deal than the individualized rate.  

As a sole proprietor, receiving insurance may be more challenging, and more expensive. Why? Now your individual insurability is considered. That group rate no longer applies. Word to the wise: you never get younger. Apply while you are young and healthy and insurable. This is a decision that you may not feel is a priority because hey, you’re young, wild, and free. Aging does not discriminate, but insurance companies do.

If you are leaving a corporate job where you have insurance coverage, ask if you are eligible to keep the life insurance. Some group policies allow leaving employees to keep your insurance rate, and transfer the policy with you.

8) Negotiation isn’t just for interviewing. Master it.

Negotiation is the name of the game. One of the all-time best pieces of advice I received from my first boss was how to make the ask. It’s this simple: Make eye contact, ask, and then shut up.

A major part of freelancing is writing contracts, which boils down to negotiating contracts and business deals. When you’re in a one on one client meeting, know what you’re worth and how to ask for it. We build credibility and respect when we are able to authenticate your ask and explain your worth.

If you left your last job because you felt undervalued, and weren’t compensated enough, ask yourself “why will it be different when I’m on my own?” If you never initiated negotiations in your previous job, will you initiate the conversation or write contracts when running your business?

If negotiation sounds like a scary verb and this is a new arena for you, it would behoove you to sharpen this skill. Huffpost’s MaryEllen Tribby writes about how business owners can be most effective in negotiating with clients.

9) Self-care, period.

Okay, so this isn’t finance related. But it’s good advice, and I couldn’t leave it out. It wasn’t until my business coach literally forced me to take a personal day that I learned what self-care meant and felt like. He asked me to answer “what would you do today if you could scratch your to-do list and have a clean slate?” Whatever that day looks like for you is called self-care. Find out what gives you zen, and do it regularly. This practice keeps you fresh, creative, and most importantly, sane. Lastly, don’t be afraid to fail. One of my favorite quotes seems entirely fitting right here: “Life is like photography, we develop from the negatives.”

A huge thank you to the following women for sharing their stories and expertise on the world of freelancing: Laura Braden Quigley, LBQ Strategies; Maria Hill, Nimble Media; Mary McCune, Bonjour Miss Mary Photography; Stephanie Rudy, Just West Designs



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