The Money Book for Freelancers, Part-Timers, and the Self-Employed

1. Embrace the Freelance Finance System: Pay Yourself First

Feed the monkey.

Take control of your finances. The Freelance Finance system is built on three key principles: creating separate accounts for major financial goals, establishing percentages for each account, and consistently paying into these accounts first. This approach allows independent workers to manage irregular income effectively and build financial stability.

Percentages are powerful. Using percentages rather than fixed amounts ensures your savings adjust automatically with your income fluctuations. Start small, even with just 1-3% of each check, and gradually increase as you become more comfortable. This method works whether you're earning $25,000 or $250,000 a year.

Develop a savings mindset. Treat saving as a non-negotiable part of your financial life. By prioritizing savings and treating it as a fixed expense, you're investing in your future security and goals. This shift in mindset can transform your relationship with money and lead to long-term financial success.

2. Establish the Holy Trinity of Savings: Emergency, Retirement, Tax

Dip in only if it's a real emergency—something that affects your ability to cover your fixed monthly costs.

Emergency Account. This is your financial cushion for unexpected expenses or income gaps. Aim to save 3-6 months of living expenses, starting with a small percentage of each check and gradually increasing. Use this account only for true emergencies and replenish it as soon as possible.

Retirement Account. As an independent worker, you're responsible for your own retirement savings. Consider options like SEP-IRAs, Solo 401(k)s, or Roth IRAs. Start with a small percentage and increase over time. Remember, the earlier you start, the more you benefit from compound interest.

Tax Account. Set aside a percentage of each check for taxes to avoid the shock of a large tax bill. Work with a tax professional to determine the right percentage based on your income and deductions. Paying quarterly estimated taxes can help manage cash flow and avoid penalties.

3. Master Your Spending Account as a Funnel for Savings

Spending is becoming more and more like a political act.

Reframe your Spending Account. View this account as a powerful tool for managing your finances, not just a pit stop for spending. It's the funnel through which your money flows to your savings accounts and fixed expenses before discretionary spending.

Track every penny. Use financial software or a simple spreadsheet to monitor your spending. Categorize expenses and analyze your spending patterns regularly. This awareness is crucial for making informed decisions about your money.

Implement the Envelope System. For better control over discretionary spending:

• Allocate cash to different envelopes for various expense categories
• Spend only the cash in each envelope
• When an envelope is empty, stop spending in that category
• Write down every expense

4. Conquer Debt: The Percentage Plus Payment Plan

Dreams are the things that make life worth living, but we would argue that your life is in peril if you don't take care of the other essentials first.

Prioritize high-interest debt. Focus on paying off the debt with the highest interest rate first while making minimum payments on others. This strategy saves you the most money in interest over time.

Implement the Percentage Plus Payment Plan:

• Allocate a fixed percentage of each check to debt repayment
• Add any extra funds you can scrape together
• Maintain the same payment amount even as balances decrease
• Once one debt is paid off, roll that payment into the next highest-interest debt

Find extra money for debt repayment:

• Reduce fixed overhead costs
• Cut back on discretionary spending
• Increase income through side gigs or negotiating rates
• Consider balance transfers to lower-interest cards (but be cautious of fees and terms)

5. Align Your Financial Goals with Your Personal Values

Telling yourself what you want, announcing it, seems to have a power all its own.

Identify your true priorities. Take time to reflect on what really matters to you. Create a list of financial goals and categorize them (e.g., security, leisure, career, family). Rank these goals to clarify your priorities and guide your financial decisions.

Get specific about your goals. Transform vague wishes into concrete, actionable goals. For example, instead of "save for retirement," specify "have $500,000 in a Roth IRA and SEP by age 50." This clarity helps you create a focused savings plan.

Create Dream Accounts. Once you've established your essential savings (Emergency, Retirement, Tax), set up separate accounts for your personal dreams and goals. Name these accounts specifically (e.g., "Caribbean Vacation 2024" or "New Camera Fund") to keep you motivated and focused.

6. Grow Your System: Adapt and Evolve with Your Success

If you're wise enough to read between the lines, you can see that there are a lot of hard choices in these percentages.

Regularly reassess your finances. At least annually, review your income, expenses, and savings goals. Look for opportunities to increase your savings percentages or adjust your priorities based on life changes.

Adapt to income changes. When your income increases, resist the urge to inflate your lifestyle. Instead, increase your savings percentages across your accounts. This habit ensures your financial security grows along with your success.

Add new accounts as needed. As you achieve certain goals or your priorities shift, create new savings accounts. For example, you might add a Health Account for medical expenses or specific Dream Accounts for long-term goals like a home down payment.

7. Build Prosperity: Earn More, Spend Less, Lower Overhead

If you sell something, you have clients. If you offer a service, you have clients. If you create art, you have clients.

Maximize earning potential:

• Regularly evaluate your client base
• Seek new opportunities and markets
• Invest in marketing and networking
• Continuously improve your skills and offerings

Optimize spending:

• Regularly review and cut unnecessary expenses
• Negotiate better rates for services and subscriptions
• Embrace frugality without sacrificing quality of life
• Use tools like the Envelope System to control discretionary spending

Reduce fixed costs:

• Evaluate your living situation for potential savings
• Look for ways to lower utility and insurance costs
• Consider shared workspaces or home offices to reduce business overhead
• Regularly review and renegotiate contracts with service providers

Last updated: April 5, 2025