Save Yourself: Create a Freelance Financial Buffer
Building resilience means saving as much money as you can
I'm sure you're familiar with the ups and downs of a freelancer’s bank balance! Some weeks we’re bringing in more work than we can handle, while other weeks our pipeline can reduce to a trickle. If we don’t have work, we don’t get paid. This makes our freelance savings incredibly important—here's how to build your financial resilience to reduce your stress, create an emergency fund, stay creative, and avoid cheap clients.
Why your freelance savings matter
Savings help you to weather the feast to famine (and back again) cycle that’s a common factor of a freelance career.
You can get out of the mindset and concern of living invoice to invoice, and make future plans.
Stress kills creativity. Savings reduce your money worries and anxiety so you can create awesome content.
Savings create an emergency fund, so you can deal with sudden and unexpected expenses.
You can start saving for long-term financial goals like further education, helping out your family, or putting money into retirement funds.
Freelance clients can sometimes take a while to pay an invoice. You can take 30-day payment cycles in your stride.
You won’t be so desperate for work that you need to lower your freelance rates just to attract cheap clients so you can pay bills.
If you’re relying on your freelance income to pay the bills, then you need some freelance savings. If you already have some reliable household income—from another job or family member—then saving isn’t as urgent. But even then it’s a good idea to have an emergency fund in an unpredictable work environment.
When to start building up your freelance savings
You can only save money after you’ve met your basic needs and paid your freelance taxes. Before you start saving, make sure you can say yes to the following three areas:
You have enough income to meet your essential living expenses—housing, transport, utilities, food, personal care, loans, and other fundamentals.
You've worked out your business costs and how much money it takes to run your content creation business.
You’ve put aside enough money to pay taxes on your freelance earnings.
After you’ve taken care of these factors, you can start socking away your money.
How to work out your essential living expenses
Your essential living expenses are all the costs you need to pay to meet your basic needs. A place to live, food to eat, staying physically and mentally healthy, getting around, and meeting your other commitments—whether that’s to family, friends, or your loan provider!
I've covered how to work out your essential expenses in a detailed guide, but here's a summary:
You’ll want to closely track what you’re spending on a monthly basis.
Keep a close eye on your bank account and note down everything that you’re paying out.
Look back three to six months, so you can get an average.
Remember to focus on “essential” spending.
You can exclude any money you spend on non-essential costs like luxury items or experiences—eating out, takeaways, vacations, hobbies, etc.
Once you’ve done that, you should have a reasonable idea of what you spend most months.
How to work out the cost of doing business
You'll need to factor in your costs for running a content creation business. Areas like platform and payment fees, software and apps, website hosting, and all of the other miscellaneous costs that go with being self-employed. You can find out how to calculate those business costs here.
How to work out roughly how much freelance tax you’ll owe
You’ll also need to pay taxes on a quarterly basis and sometimes at the end of the year. Working out exactly how much tax you'll owe as a freelancer can be complicated. But, in the US, a reasonable rule of thumb is to assume you’ll pay roughly 30% of your freelance profits in taxes.
Remember, that’s a tax on your profits, not on how much you invoice. You get to deduct your business expenses from your revenue, and pay tax on what’s left.
Balance your savings against your non-essential spending
Once you’ve taken care of taxes and essentials, you’ll (hopefully) have enough left over to start putting some away. Now, you have an important decision to make: How much of what’s left over do you put into savings?
Anything you don’t save, you can spend on yourself—that’s how you’ll pay for your vacations, hobbies, experiences, and other fun stuff. At the same time, anything you spend means you’ll be putting away less money and it will take longer to build up your freelance savings.
This will be different for everyone, and you need to find the balance that works for your lifestyle and future needs. Some freelancers may choose to forgo any extra spending and put every penny into savings. Others may save 30% of their excess money and spend the other 70%. Some might go 50/50.
The important point here is that once you have enough savings, you can change that ratio. You might live with a bare minimum of extra spending for six months while building your freelance bank balance, but after that, you’ll have enough, so you can go in the other direction.
Find out what works for you.
Three to six months of savings is a great goal
If you can, try and save between three and six months' worth of your essential expenses. If you’re spending $2,500 a month, you’ll want to put aside between $7,500 and $15,000. A horizon of between three to six months should see you through most downturns in your freelance earnings.
Keep your savings safe
You’ll want easy access to your savings, That way, if you lose out on work, have an emergency, or otherwise need to tap into the money, you can do so quickly. You could keep your freelance savings in your current or checking account or move some of them into a savings account. Do check that a savings account lets you withdraw money quickly if you need it.
Once you have enough savings for a few months of essential expenses, you can save for the longer term. You might start funding a retirement account or an investment account. If you do, make sure it’s not money you’ll need for the foreseeable future—investments can go down over the short term, but over longer periods of ten years or more, they’re very likely to go up in value.
Remember...
Keep track of how much you have in your savings. If you’ve needed to dip into them, build them up again as soon as you have some extra income.
Review your essential costs a couple of times a year. If they’ve gone up, top up your savings accordingly.
Remember that you’ll need to pay estimated taxes, so that will impact on how much you have in the bank.
One good way to boost your savings is to increase your freelance rates, here are some strategies to do just that.
I hope you've found this helpful, and I can't stress enough just how much it can reduce your anxiety when you have savings to fall back on. Spend some time understanding your spending, and start building a financial buffer. You won't regret it.
Please note that I am not a qualified professional and I do not provide tax, legal, accounting, or similar advice. These guides are provided for informational purposes only. Always consult with a qualified professional on your unique circumstances.
Paul isn't a professional consultant, but he has more common sense than many people. Good man.