How to save money as a freelancer

Kern Carter
by Kern Carter October 24, 2019 / No Comments

Taking a unique approach to saving money as a freelancer

I think anyone new to freelancing thinks securing contracts is the toughest part. To some extent, that’s true. You can use Fiverr or Upwork to find basic clients, but finding good paying clients can be much more difficult at the outset. 

While I can appreciate the days of not knowing where my next dollar was coming from, there’s a different kind of struggle once you do get some money flowing in “consistently.” I put consistently in brackets because that’s the foundation of the problem. As a freelancer, money is hardly ever consistent in the traditional sense. Even when you’re making a lot of it, one of the hardest skills to master as a freelancer is managing your money. And even harder is saving any of it. 

It starts with setting your freelancer salary expectations

The first thing you need to acknowledge is that this problem is under your control. Don’t complain about clients not paying on time or not paid the right amounts when you’re the one who sets the expectations. Being able to properly save starts before your client even signs the contract. With the majority of contracts, you set a deadline for when you need to be paid. When presenting the agreement, be sure to highlight that timeline so your client is clear. I take it one step further and impose penalties for late payments. Three days late can be an extra 5%, seven days an extra 10%, and anything after that can be 25%. Make a point of explaining this to clients. Once they see how serious you are about getting paid on time and sign off on this, you give yourself the best chance for reducing any late payments.  

Start making assumptions 

Once your client signs the contract, you’re now in a position to make some reasonable assumptions. This is where you want to be. Regular 9-5’ers can safely assume with a high degree of certainty that they will get paid every two weeks. While we freelancers will likely never enjoy that level of certainty, by setting the expectations and properly structuring our contracts, we can now be reasonably sure we’ll be getting within three days of our deadlined date. With that info, we’re now better equipped to know how much we’ll be making by a certain period of time. This assumption is the foundation for being able to better save money. You’ll understand why in the next step. 

Think and plan in three-month increments 

Here’s the thing; as a freelancer, you can’t think month to month like everyone else. You’re better off planning in three-month increments. In my experience, three months gives you a more accurate indication of your average earnings. We all have those months where we don’t make as much as we would like. We also have those months where we make a lot more. If you average your revenue over three months, it usually provides a baseline that you can trust. At the end of those three months, take 20% of what you’ve earned and put it in a high interest savings account. Repeat that again every three months throughout the year. 

Open a “spending” account 

So much of knowing how to save is understanding how to spend. Once you’ve established a three-month earnings baseline, I would suggest opening a spending. This is basically a chequing account with the sole purpose of spending your disposable income. No bills should come out from this account and it’s not for saving. Here’s how it works: 

It’s the end of a three month period and you’ve made $14,000. You put 20% in a savings account and let’s just say half goes towards bills. This leaves you with $2,100 left to spend for the next three month period. Putting that money into a spending account does two things: It lets you know exactly how much you’re able to spend so you can plan accordingly. The next thing it does is keep you accountable for overspending. If halfway through month two that account is looking a bit light, you know you need to tighten things up in month three. 

How much money should I put away for taxes?

Can’t forget about this. You’re a freelancer so no taxes come out of your paycheque. There are different ways to go about doing this. Revenue Canada actually allows you to open up an account where you can deposit your taxes monthly. That’s an option, but it doesn’t allow you the time needed to adjust for any deductions (remember, you can deduct your travel expenses, some equipment and even a certain percentage of your apartment as working space). What I think is a more effective option is to use technology. Apps like Sorted and Quickbooks will help you track and calculate your taxes so you don’t have to worry about it. If you’re a DIY kind of freelancer, then I’d suggest putting away 25% of your earnings on the same three-month schedule I mentioned before in preparation for tax season. You could put the money into a TFSA to earn tax-free interest while you wait to make your tax payment. Be aware not to go over the yearly maximum though, otherwise you could pay penalties. In 2019, the maximum amount you can put into a TFSA is $6,000. You can withdraw $6,000 to pay your taxes anytime (and leave the ~$150 you earned in interest in the account). 

Saving for retirement as a freelancer – you have to make a decision

Maybe you’re really killing it right now and can save for everything. More likely, you’ll have to make some difficult decisions. For instance, I don’t really save for retirement. I may throw fifty bucks in an RRSP from time to time, but nothing consistently. You’ll have to decide what stage of life you’re at and what’s most important.


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The Bottom Line

No, this isn’t typical savings advice, but freelancers aren’t typical workers. We need to cater our finances to how we operate and stop trying to match our expectations to others with regular jobs. Saving is possible as a freelancer if you’re able to shift your mindset. Take it from me. If you follow these simple steps you’ll be on your way to a healthy savings account. 

Author: Kern Carter

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