Disclaimer: I’m not a financial advisor or a financial professional. I’m simply sharing what I’ve done with you. If you need professional advice on how to manage finances as a freelancer, scroll to the end of this blog!
I spent four years with the messiest finances ever. And also… I’m still working out the kinks in my *imperfect* system. So… if you’re feeling bad, overwhelmed, or lost about your finances, you’re not alone. Five Pop Clubbers admitted their fears on our workshop call this week, too.
And honestly, I was so scared of my financial planning siutation that I avoided my credit card debt for 2 years – costing me over $4,000 (a.k.a. $1k more than I owed).
If I were starting from scratch, here’s how I’d get my financial shit together as a freelance writer…
Step 1: Separate your finances
Open any of the bank accounts you don't see below if you don't already have them set up:
- Business bank account: I use Novo and I also really love Found (you only need to pick one) – use this to collect all of your freelance income and pay for business expenses.
- Personal checking account: Pay yourself. transfer any profits you don't have going to savings/investments to this account and then use this to pay for personal expenses.
- High Yield Savings Account a.k.a. an HYSA: I use WealthFront (DM me if you want a code for 0.5% boost in interest!) For emergency savings and tax savings. You can pay your estimated taxes quarterly directly out of this account on autopay with the IRS if you want!
- Bookkeeping: I use Found and Novo’s built-in bookkeeping features and go through it quarterly to make sure everything’s categorized properly.
Step 2: Create a management system
I use the Proportional Paycheck Method to manage my finances. This method automatically allocates your income into categories based on percentages. That way, you can spend and save money proportionally, no matter how much money you make each month. Here’s how it works:
1. Determine your categories
Before you do anything, determine which categories you want to allocate your money to. We based this on freelance taxes and the 50/30/20 rule, then specified based on our personal needs. Here are the 50/30/20 categories:
- Taxes
- Needs
- Wants
- Savings
Then, you can get even more specific with custom categories like:
- credit card payments
- emergency fund
- retirement
- rent
2. Create percentages for each category
This part can be tricky so you’ll have to play around with it to find your exact categories. Inside your business account, automate your reserves to divvy up your revenue.
- First, set aside 15-30% so you can pay estimated taxes
- Divide what’s left by 50% (needs), 30% (wants), and 20% (savings).
- Customize your needs, wants, and savings based on the categories you defined in Step 1.
3. Set up automations
Next, plug those percentages into automations inside your bank account. That way, every time you get paid, your bank will automatically allocate the appropriate percentages of your “paycheck” to your categories. We use Novo (use this link to get $40 when you open & fund an account 😉), but Found is also a really great choice with even more features. I adjust the reserves quarterly if needed.
Step 3: Establish the basics
If you don't already, you'll need to establish these items before you move on. Take your time on this step. These are essential. If you haven’t gotten through these steps within 2 years, start adding on the next steps and balance out your other payments.
- a HYSA with at least 1 month (tbh I recommend 3+ months) worth of expenses saved
- a tax savings (20-30% of everything you earn freelance) or start paying quarterly tax payments
- Separate your finances into business and personal accounts
- Pay off (or at least minimize and make a plan for) your high-interest debt (anything over 8% interest - so things like credit cards and short-term loans)
Step 4: Set up a Roth IRA
You can contribute up to $6k per year to this and you don’t have to pay taxes on it! Invest monthly or quarterly. 2-5% of your income to start, more if you can.
Step 5: If you still have extra money, you can...
- put it in a HYSA
- invest in other retirement or investment funds
- contribute to a HSA if you have one / will use it
How can I learn more about getting my financial shit together?
Inside Pop Club, we do quarterly money dates and we also have workshops with financial experts like Personal Finance Money Coaches, Small Business Financial Experts, Financial Advisors multiple times a year.
You can also get access to Pop Club via my 1:1 coaching programs if you need extra support.