How do I make money as a freelancer?

<div class="user-question">Hi Frich! I've been wanting to get into freelancing after I graduate but I'm really nervous about the idea of being solely responsible for a business. I'm also absolutely confused about how I'm supposed to manage business finances?? Please help out! Any tips on how to start a freelancing business would be super helpful!!</div>

Hi there & thank you for sending in your question!

You’ve done the first hard part of making that decision to side-step the traditional 9-to-5 and call your own shots - go you! It can be a bit nerve-wracking to forge ahead without a typical salary, so let’s go through some ways you can keep your financials flourishing on your freelancing adventure.

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💼 Managing Your Money While Freelancing

So now that you've decided to get started with freelancing, what’s the best way to make sure your finances stay simple while you’re dealing with the intricacies of being your own boss? Here's my Freelancer Survival Guide:

1️⃣ Build a buffer fund: It’s one of life’s guarantees — something is gonna go wrong. When you’re freelancing, this can look like losing a client or having reduced income over a certain month. Creating an emergency fund is a bank account’s first line of defense, ensuring you don’t end up with a bunch of stress and credit card debt when you find your income fluctuating. A general rule of thumb is to build a fund that covers 3-6 months of your current living expenses.

Not many people can stash away thousands of dollars in one go. What’s more realistic is gradually building up your emergency fund over time. Start by opening a separate account, label it Emergency Fund and set up automatic weekly transfers. When you’ve got some extra cash, throw it in there until you hit your target amount. Once you’ve reached your goal, you can stop adding to it and let it sit.

It might be tough to get started, but once that fund is full, you're all set!

<div class="frich-tip">Here's our fav tool to build your emergency fund.</div>

2️⃣ Separate your business and personal finances: What’s that saying about mixing business with pleasure? Keeping your business and personal finances independent of each other as freelancer helps track profitability, ensures your deductions are maximized, and prevents complications during tax season. It also allows you to maintain clearer financial boundaries, which can foster a healthier relationship with your money.

Here are three easy ways you can start doing that right now:

• Open a business bank account: Set up a dedicated bank account for all of your business-related income and expenses. This helps keep everything organized and ensures your personal funds stay untouched.
• Get a business credit card: Use a separate credit card for business purchases, making it easier to track and categorize your expenses.

<div class="frich-tip">Here are our fav options!</div>

• Keep receipts and records: Organize and save all business receipts and records in one place. You can use apps like Quickbooks or even a simple folder in Google Drive to keep track of everything digitally.

3️⃣ Plan for taxes: Speaking of taxes, the tax man will be on your ass now more than ever. Freelancers should aim to set aside 25-30% of their income for taxes to cover federal, state, and self-employment taxes. To stay on track for meeting your tax obligations throughout the year, you could consider making quarterly estimated tax payments through the IRS and use apps like PocketSmith that help you calculate what you owe based on your income.

4️⃣ Pay yourself first: Paying yourself first just means setting up a consistent “salary” from your freelance earnings to establish a stable budget. When you set aside a portion of your income for things like personal savings and essential expenses before handling other costs, you’ll always have a strong financial foundation — even with unpredictable income.

Let’s say your freelancer income is $5,000 for a month. You could allocate your funds like this:

Now you’ve got 50% left, which is $2,500. Since you’ve already set aside money for your essentials, you can pay for things like your living expenses, rent and fun-time spending without worrying you’ll have enough to cover those costs. Nice!

5️⃣ Get insured: Now that you’ve got your emergency fund, getting the right insurance gives you another layer of protection if things go south. Insurance is about managing the uncertainty of the future. Being self-employed means you’re often navigating unknowns and taking significant risks with your income. As a freelancer, you face more risks than a traditional employee, so it’s essential to understand and address these new challenges and find an insurance policy that works for your unique situation.

6️⃣ Build multiple income streams: Just like with investing, diversification is your best friend. When you have different sources of income, your wallet is less likely to feel the pinch if you lose one of those sources. Building these different streams might look like having multiple clients, working on different projects or joining various platforms like SideShift(platform for finding side gigs) and Kubyo (platform helping you earn money through your social media).

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💼 Go With The Cash Flow

Cash flow is one of the most crucial aspects for anyone with income that ebbs and flows, as it influences nearly every financial decision you might make as a freelancer — from covering expenses to scaling your business. Here are some ways you can get your cash flow, y’know, flowing 🌊

1️⃣ Invoice quickly: The faster you invoice, the faster you can receive payment, right? A prompt invoice to your client ensures you’re getting paid as soon as possible to cover expenses and keep your cash flow steady. It will help show how professional and efficient you are, as well.

Rachel, a PocketSmith pro and long-time freelancer, has these top five tips for invoicing her clients:

• Be upfront and clear: Lay out your rates, deadlines, and payment terms early to keep things smooth.
• Stay flexible, but firm: Adapt to client needs, but know where to draw the line.
• Deliver fast, but set limits: Early delivery is great, but make sure clients know it’s not the norm.
• Follow up confidently: Don’t hesitate to remind clients about overdue payments — everyone needs a nudge sometimes.
• Set boundaries and say no: Walk away from clients who don’t respect your time, and focus on those you vibe with.

2️⃣ Negotiate your payment terms: It can be super unfun to talk about getting paid to the person who’s paying you, but it plays an important part of the freelancer life. Setting up shorter payment windows or asking for upfront deposits can help you access funds more predictably so you can maintain consistent cash flow.

To help you jump-start that convo, here is a template you could use:

3️⃣ Use apps to budget and save: As a freelancer, managing your finances also involves budgeting effectively. Tools like PocketSmith allow you to set goals, track your income and expenses, and give you insights into your spending habits for a healthy cash flow during slow months.

PocketSmith even has a tool specifically for cash flow — the Cash Flow Statement! It provides a month-by-month overview of your finances, both in the past and forecast into the future, allowing you to anticipate income and expenses in advance.

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💼 Some Light Reading For You

If you’re looking for some more resources about freelancing, we’ve got a bunch of PocketSmith articles for you to read:

📚 How I Manage Multiple Sources of Income in PocketSmith

📚 Invoicing Your Freelance Clients

📚 Navigating the Holiday Period as a Freelancer

📚 How I Use PocketSmith as a Freelance Writer

📚 Cash Flow Forecasting When You’re Self-Employed

📚 Insurance Must-Knows for the Self-Employed

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Btw - here's how others are doing👀

How do you think your income compares to your peers?

🚀42% I think I make more

☺️35% I think I earn similar to my peers

😓23% I think I earn less

Freelancing can be tough sometimes, particularly when it comes to the money side of things. As long as you’re sure it fits your lifestyle and your goals, and you build a strong financial foundation, you’ll find it so rewarding.

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Fly free, my little freelancers 💜

Chloe

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