Money Management Tips for Freelancers


Ever got to the end of the quarter and thought ‘how the hell am I going to pay my tax?’ *Raises hand* So then you end up on a never ending payment plan that sucks all the fun out of making money. Yep.

Ever worked your butt off for weeks, and still had no money in your bank account. Yep me too.

Haven’t been able to afford a trip to the hairdresser for over 12 months because your email marketing subscription took the last of  your funds. Been there done that.

This pretty much sums it up..

“Entrepreneurs are willing to work 80 hours a week to avoid working 40 hours a week”
Lori Greiner

Everyone telling us that self care is important, but eating is too.

Sometimes manifesting isn’t going to get the tax man off your back. You need a plan.

Over the past 18 months I’ve made some massive changes in terms of how I manage my money so I thought I’d share them with you here. I’ve devoured loads of books and blogs on better managing my money and have come up with a system that works for me using a bunch of various techniques.

1. Setup multiple bank accounts

First off find a bank that has no fees (or low fees). Then setup six bank accounts: a general account for your expenses and savings accounts for gst, tax, profit, savings and wages. I’ll explain why a little further down, but I find it’s easier to move money into these accounts than it is manage spreadsheets – plus it prevents temptation. Most business accounts allow you to have multiple savings accounts with only the primary account having the fees.

2. Know your figures

Figure out what are you absolute must have expenses for your business. I categorised mine into mandatory (software/internet), what makes my business better (email marketing) and what makes my life easier (project management tools).

If your income is waaaaay less than your expenses you’ll need to either get your sales shoes on, decide whether or not what you’re actually doing is not running a business but having an expensive hobby or move to step 3 and make some changes.

3. Cut your expenses

Generally your expenses should not exceed 30% of your revenue. You need to be smarter about what money is going out.

Some examples of how I avoided extra expenses – my printer blew up, my immediate reaction was to go buy a new one, however I don’t print that much, so I got myself an office works print card put $5 on it and for the entire year I think I’ve actually spent 40c.

I was spending $50 a month for Microsoft Office. I only use it to open client content, so I ditched it and can now do everything in Google Docs. I also ditched Basecamp and now use ASANA for my project management tools.

The aim is to cut your expenses by 10% (We’ll be using that 10% for fun stuff, I promise, more on that soon).

4. Hide your taxes

When money hits your account you think woohoo! but unfortunately it’s not all yours. It goes to health care and schools and roads and libraries. So before I get too excited I take off the GST straight away. Done. No more tax department on my case *phew*. If you’re not registered for GST obviously you don’t have to do this.

The next thing I do is take off cost of the sale to give me my actual revenue, so if I have hired a contractor for a certain job I take that off before I start divvying funds, that again is not my money.

Once that is done, with the remainder I put aside 15% into my tax account – this is for my PAYG/Income tax. You could work it out exactly if you’re so inclined but I’ve just gone with a round about number and so far it’s served me well.

5. Pay yourself regularly

Give yourself a regular pay check, and make it a priority. This changed my life. Seriously. No more wondering if I can make my car payment this week! HURRAH! With my real revenue (the amount I was paid) I put 50% into a ‘wage’ account. Now this isn’t my personal wage account, this is what I like to call the ‘holding account’ this is where I save up to know I’ll always be able to pay myself a wage.

Then once a month I pay myself a regular pay check from this account. Like a boss.

So how do you work out how much you should pay yourself for the month without over extending? Bring up your accounts from the last 12 months and pick your 3 worst months in turnover. Yep the worst ones. Get the average of those months and then half it. That’s your monthly salary.

If it’s not enough to put food on the table, you need to go back to step 3. The tip is you don’t want to over estimate here otherwise you’ll just be living beyond your means and getting yourself into all sorts of problems. If you were super good and cut your expenses by 10% then give yourself a 5% pay increase. Woo!

Every 90 days reassess this based on the previous 12 months. If all going well this means pay rises every quarter! YAY! If not, you know it’s time to start hustling.

6. Make a profit

Yeah some of us are doing this for the lifestyle, but most likely our ultimate goal is to have a profitable business.

So this starts now. Not when you’re making 6/7/8 figures. Now.

If you got your expenses down by 10% and you gave yourself a 5% pay increase, now it’s time to use that other 5% to make your business profitable.

So from every sale (after you’ve taken off the GST & the cost of sales) put away 5%. After 90 days split it in half, give yourself a bonus (top tip: spend it on something fun!) and put the other half into your business savings for a rainy day (think new photos for your website or that amazing web designer you’ve been wanting to hire).

7. Other handy tips

I put away my client deposits until the job has actually started. This way I am not paying myself before the work is done. Nothing worse than getting to the end of a project and feeling like you’re working your butt off for nothing (even though you already got paid but have spent the money!)

I also now make sure I have enough to pay any subcontractors before I engage them.

Summing up

So here’s a quick break down of my money management actions.

When money comes in…

  • Move 10% to GST Account (if you’re registered)
  • Pay contractors

With the Remainder:

  • Pay my taxes 15%
  • Pay myself 50%
  • Pay a profit 5%
  • Remaining for Expenses 30%
  • (total 100%)

Every 90 days…

  • Give myself a Pay rise
  • Pay myself a Profit
  • Put away some money for a rainy day

It may seem like a big process, but it’s not. And it works.

2 thoughts on “Money Management Tips for Freelancers

  1. This is brilliant Nicki! The most sense any money article for freelancers has made to me. Thank you, am going to work through your list 🙂

Leave a Reply

Your email address will not be published. Required fields are marked *