When you first start freelancing, it might be tempting to burn through your paychecks. You need to resist that urge to spend everything you’ve earned and get into the habit of setting aside portions of your paychecks into a savings account. 

Why? There are a number of important reasons why you should start this habit. 


The most important reason to practice setting aside portions of your paychecks is taxes. As a self-employed person, you will be responsible for paying income tax and FICA taxes. What are FICA taxes? Federal Insurance Contribution Act (FICA) payrolltax is a combination of Social Security tax and Medicare tax. Most employers automatically withhold these taxes from their employee’s paychecks. Since you are self-employed, you are responsible for collecting and paying these taxes on your own.

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How much should you save? A good rule of thumb is to set aside 25-30% of your earnings for tax purposes. This may sound like a lot, but you don’t want to underestimate how much you’ll owe and come up short. When it comes to your taxes, it’s better to be safe than sorry. 

To get more information about managing taxes as a freelancer, go to the IRS self-employed tax center.


You shouldn’t just set aside savings for tax payments. You should set aside savings to make an emergency fund, too. 

An emergency fund will come in handy for urgent expenses that could put your work-life on hold. Maybe your laptop gets stolen from your workbag while you’re sitting in a coffee shop. Maybe your smartphone falls out of your jacket pocket onto the sidewalk, and the screen smashes. Maybe your car breaks down and needs to be brought to a mechanic for repairs. 

As a freelancer, you can’t afford to ignore emergencies like this. These emergencies will put your work on pause — and any time that your work is put on pause, your income is put on pause, too. 

You’ll want to set up a reliable safety net so that these obstacles don’t put your livelihood at risk. An emergency fund will do just that. You can use it to cover the costs of essential repairs and replacements right away. This will help you get back to work as soon as possible. 

What if you don’t have enough in your emergency fund? If your emergency fund is still new or it’s been recently emptied, you might not have enough savings to cover an urgent expense out of pocket. In that case, you could try to apply for a personal loan online to help you. 

Be sure to check for loans that are specifically available in your home state. Not every loan will be accessible to you. So, if you live in Honolulu, you’ll want to look for loans in Hawaii to manage your emergency expense. Skipping this crucial step could mean that you fill out an application for a loan that isn’t available in Hawaii and waste your time. 

Late Payments:

Your clients might not be as punctual with their payments as you are with your deadlines. They could take days or even weeks to send you what you’re owed. You’ll want to have some savings set aside so that you can manage to cover essentials like rent, bills and groceries while you’re waiting. Otherwise, you might panic when your client doesn’t send your paycheck on time.

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Late payments aren’t inevitable. There are some precautions that you can take to dissuade your clients from skippingpayments:

  • Always have your client sign a freelance contract before beginning any work for them.
  • Send your client an invoice immediately after completing your work.
  • Divide larger payments into smaller installments.
  • Ask your client for a deposit at the beginning of the project.
  • Include late fees in your freelance contract.

If a client is repeatedly late with payments, you may want to stop working with them. They have proven that they do not respect your time and effort, and they are very comfortable with putting your financial stability at risk. Their inability to meet this clear boundary could mean that they will ignore other boundaries that you set in the future. They may try to push you to work longer hours without proper compensation, answer calls on days off or take on more work than you originally agreed to. 

When ending your business relationship with this client, let them know that their late payments contributed to this difficult decision. This could influence them not to repeat this behavior with another freelancer in the future. They could learn a valuable lesson. 

Inconsistent Work:

You’ll find that sometimes yourschedule is absolutely packed with projects, while other times, your schedule is sparse.A good way to protect yourself during those times when your workload dries up is to have a stash of savings that can accommodate thedrops in cashflow. You can use the savings to cover your monthly essentials until the drought ends and things return to normal. 

As a freelancer,you have to be your own accounting department, and one of your biggest accounting tasks is setting aside plenty of savings. The habit will help you prepare for all sorts of situations, from paying your taxes to handling urgent expenses. So, it’s time tostart planning ahead and filling up your savings account.