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Financial management differences between freelancers and traditional employees

Six areas of financial management to consider as a freelancer

Flexibility is one of the top reasons individuals choose to become freelancers – 42 percent of freelancers named schedule flexibility as a motivator for freelancing, while 51 percent say no amount of money would get them to take a traditional job.

That ability to be your own boss also means that as a freelancer, you’re responsible for several additional elements of your finances. Familiarize yourself with these six areas of financial management for freelancers.

Cash flow

The inconsistent nature of freelance work can create cash flow problems, particularly if you’re used to budgeting around a regular paycheck. Keep these rules of thumb for cash flow management top of mind:

  • Consider separating personal and business accounts . This will allow for an easier picture of your freelancing income and expenses.
  • Prioritize savings . Having a sizeable savings cushion can help smooth over any cash flow dips. Aim to have six months’ worth of expenses in your savings.

Payment tracking

Where applicable, plan to outline a payment agreement upfront with each individual client. Determine whether you will accept cash, check, electronic transfer, and/or via an intermediary. The electronic transfer is often easiest, as it streamlines the payments process, reduces the risks associated with physical checks and cash, and will be easiest to refer to at tax time.


IRS website

Medical benefits

Since freelancers don’t have a pre-selected health plan from an employer, you’ll have to choose a plan on your own, as under the Affordable Care Act, there is a penalty for not having health insurance.

You can explore your options through your state’s health insurance marketplace, or by searching for private insurance plans. You may also look into whether you could be covered by a spouse’s health insurance plan.

Factors to consider in a health care plan include plan and network types (e.g. HMO, PPO, POS, EPO), total costs, and where a plan falls in medical coverage levels.

Retirement planning

Without a retirement plan from an employer, freelancers need to select their own retirement plan. Common options include a Simplified Employee Pension Plan (SEP-IRA), Savings Incentive Match Plan for Employees (SIMPLE IRA), individual 401(k)s, and Solo Defined Benefit plans (Solo-DB). When selecting your plan, consider:

  • How much you’d like to contribute on an annual basis
  • Your target retirement date
  • The amount you will receive from Social Security – and when it makes sense to retire according to that income, as benefits increase the longer you remain in the workforce

Saving for retirement is a complex process, and the right plan differs from person to person. So take steps to educate yourself on the various options, and refer to the guidance of a financial advisor.


Since lenders typically need verification of stable employment, the unpredictability of freelance cash flow can create difficulties building and getting credit. To build credit as a freelancer:

  • Know that establishing your freelance business can add a level of legitimacy to your business.
  • Keep meticulous records. This is another area where separate bank accounts and tax records come in handy.

When building your credit score, it’s helpful to know what lenders are looking for.

Being aware of these financial management considerations for freelancers upfront will ensure financial stability down the line.

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