How to manage finances as a freelancer (beyond basic budgeting)

Elena Prokopets
Written by Elena Prokopets
on November 01, 2022 10 minute read

Dealing with financials can be overwhelming for newbie freelancers and more experienced folks alike. But don’t sweat it! You don’t have to be an accounting expert to run a financially stable business of one. And with a little preparation and the right tools, you can show your freelancer financials who’s boss so all your hard work will start paying off (literally!).

So, let’s look at how to manage finances as a freelancer and avoid some common mistakes we see as an accounting partner

How to manage finances as a freelancer like a pro 

The essence of financial planning for freelancers is knowing three things: How much you earn, spend, and save. These figures are easy to estimate (you don’t have to be a Maths guru!). Buuuut, you do have to spend some time in a spreadsheet or your accounting app (which isn’t that fun). 

In this post, we explain how to set up deadpan easy systems for tracking your earnings, freelance expenses, and savings. Here we go. 

Best practices to keep track of your finances as a freelancer

1. Create a freelance income tracker

When you’re starting out, your freelance income can be irregular with some inevitable hills and valleys.  Sometimes you might be overbooked with work. On other weeks — it’s crickets. 

Experienced folks face another dilemma: When you aren’t sure how much you're going to pull in this month, it’s easy to over-book yourself. Just because new client inquiries keep coming, it doesn’t mean that you should jump on every task. You have to maintain a balanced work schedule. Or else you’ll end up visiting Burnoutsville just too many times. 

The point is: It’s good to know how much money you’ll make before the client check clears (which can take 30+ days). 

Use a simple freelance income tracking spreadsheet to record how much work you already have booked for each month. Capture the data when the client invoice will hit your bank account (rather than when you send it). Add a project description and price. 

I also like having an hourly tracking column where I later add hours worked on each project and then estimate by billable rates. Doing so helps me understand how many productive hours I spend on different types of work and where that leaves me financially. If you notice that some clients require more hours (for one reason or another), consider raising your rates with them. 

Remember: Your billable hours must be high enough to cover all the non-billable work you do — accounting, business admin, client canoodling, marketing, and so on. Plus, factor in expenses like taxes and social contributions. 

(And if you’re a happy Xolo user like me, you also get access to better monthly income/expense analytics straight from your app dashboard!).

New call-to-action

2. Have a separate business bank account when working as a freelancer

Some solos use their personal bank accounts for business purposes. But looking through bank statements to separate business and personal transactions can be a pain, especially if you wait until the last minute/ tax time. And you can easily prove your business financials if needed, like when borrowing money to scale your business or getting a digital nomad visa.

Moreover, if you ever decide to incorporate your business as a limited liability company (LLC), having a separate business bank account is a legal requirement in most jurisdictions

Soundly, there’s no shortage of no or low-fee business bank accounts for solo business owners. Xolo Go and Xolo Leap are bundled with a free Wise account. Xolo Go is especially great for new freelancers who don't have a steady stream of clients yet and need a flexible option for invoicing. Xolo Go has a fixed-rate 5% withdrawal fee whenever you transfer money to your personal account, so we only get paid once you get paid.

Other freelancer-friendly banks are Revolut Business, Tide, Bluevine, and Lili. Plus, you can find more options in our big list of the best resources for freelancers.  

3. Stay on top of client invoicing as a freelancer

Invoicing can unpleasantly cut into your freelance profits.

Remember, there’s a time lag between the invoice date and receiving money, depending on your payment terms (Net 7/15/30, end-of-month, etc). Moreover, clients often forget to settle invoices on time.

A staggering 49% of invoices from US businesses end up overdue. The British  Federation of Small Businesses also reported that some £23 billion in payments were late, with 62% of small businesses facing more delays since the pandemic began. 

So your job is to not let invoicing (and late payment chasing) become a routine headache for your operations. 

Here're several ways to make sure your paycheck arrives faster:

  • Discuss payment processing methods upfront. Many clients don’t know how to effectively pay freelancers and go with “old-school” methods like checks or expensive wire transfers. The matters often get even more complex if you’re based in different countries. So always discuss the payment options as part of your new client onboarding process. State how you accept payments (e.g. as a bank transfer, via PayPal, Stripe, etc.). Then confirm that the proposed option works for the client. 
  • Trim your payment terms. A surprising number of industries still believe that NET 60 (aka getting paid within 60 days after invoice submission) is a fair payment term. Well, not for most freelancers. Be upfront and state that you expect payments within a maxim of X days (like 7, 14, or 30 max). You can also impose shorter payment terms (e.g. same-day or 7 days) for smaller invoices (which the client can easily clear fast) and longer ones for bigger projects. 


Source: Twitter 

  • Introduce retainers. Retainers assume upfront payment for a set number of hours or deliverables. By charging retainer payments at the beginning of the month, you should have enough cash flow to keep you going until end-of-month payments arrive. 
  • Launch productized service offerings. A productized service is a standardized, scoped bundle of services you sell for a fixed fee. Many productized services can be styled as subscriptions, automatically due each month (e.g. $800 for a set of 25 product shorts for Instagram). As with retainers, productized services are a great way to wire some recurring billing into your freelance business. 


Finally, automate your invoicing process. When creating invoices manually, you can easily mistype the sum, date, or client details (which creates an unnecessary back and forth). Or you can miss more important deets like adding a correct VAT number or charging the right VAT/sales tax rate. And this can get you into tax troubles. With Xolo, that’s one thing less to worry about. 

4. Track your freelance expenses 

Busy solos are notorious for procrastinating on getting their numbers in order until tax deadlines are looming and can no longer be ignored.

But doing expense tracking about once per year results in two things:

  • You miss out on maximizing allowed tax-deductible business expenses (to shave some money off your tax bill) 
  • You have no idea how you’re using your freelance money on a day-to-day basis which probably means you’re overspending here and there 


So start building a better habit of expense tracking by regularly uploading all the receipts and actually analyzing where that money goes. In particular pay attention to: 

Payment processing costs

Most payment processing apps tout an approximately 3% fee for invoices and card payment processing. That’s harmless, right? Well, nope. Because many of the payment businesses are built to generate money from transaction processing fees — and they’ll look for ways to maximize those. Often by sneaking in some “hidden” charges.

For instance, PayPal has a wide range of payment processing fees that change depending on the payee's location, payment method, or account currency. So more times than not, you’ll end up with a per transaction rate close to 5% than the prominently advertised 2%-3%. 

Business subscriptions

Automating some parts of your business is essential for staying productive. And freelancers have no shortage of apps and tools to choose from and for a small cost. But an app for this and an app for that can easily turn into some $200+ dollars being spent on stuff you don’t actually use. 

Few apps today are “mono” solutions. A good accounting app also has features for invoicing, tax management, and sometimes even payment processing. So why pay for all of ‘em separately? 

Apps like Rocket Money and Trim can automatically trawl your connected accounts for all subscriptions and help you cancel them automatically.  

Minimum personal spending

Taxes, pensions, health insurance, professional memberships, business gear — solopreneurs pay for a lot of stuff out-of-pocket. Then you also have personal bills like rent, utilities, food, and funsies!  You gotta know how much cash you’re burning through each month to run a business and maintain a thriving life. 

So draft up a quick tally of the minimum sum you need to pull in each month. That’s the ballpark you should either work towards hitting each month (or plan to cover with leftover money in your budget). Speaking of which…

5. Create a freelancer budget

Budgeting as a freelancer can be a little difficult because of your fluctuating income.  That’s why you have to estimate your monthly income (see tip 1) and know your expenses (see tip 4). 

Then put those numbers side by side and determine if you’re doing fine. If your earnings aren’t enough to cover your living and professional expenses, then you’ll need to find ways to increase your income, reduce your expenses, or do both. That’s financial planning for self-employed 101. 

But if you’re already doing the above and things still don’t quite add up for you, here are several more budgeting tips to try:

Start a buffer fund

That’s some extra cash that you leave sitting in your business account. You deplete this reserve only when there’s a lull in your work. Then top it up when you have a bigger earning month. 

For example: In October, you earned $6,000 in gross profit. You need $3,000 to live on and another $1,500 goes towards misc business expenses + taxes. That leaves you with $1500 in extra cash. Put away half towards your buffer fund. Your future self will thank you for this when you’re having a drought at work or want to take some time off. 

Analyze your pricing through the lens of your monthly budget

You know you need to make a minimum of X to live a good life. That’s your minimal budget goal. Now you need to estimate how much work you need to book to meet it. 

You can estimate how many billable hours you need to work or how many projects you need to complete to hit it based on your current prices. This exercise is an easy way to figure out if your client rates are fine.

Because if the numbers tell you that you need to work 8 billable hours per day 7 days a week, you are grossly undercharging. Fix that!  

Progressively build up a runway

A runway is a sacred sum of money that can sustain you for several full months without work. It can sit in your savings or an investment account — and you don’t touch it. 

Having a sufficient financial runway eliminates the stress of constantly booking new work and accepting projects that don’t make you excited. It empowers you to say “no” to nightmare clients or low-paid work and instead focus on your ideal clients and well-compensated tasks. 

Even though not all freelancers start out with a runway, everyone should strive to build a loooong one.

How much money should I save as a freelancer? 

The short answer is — the more you can save, the better. If you can put away 35%-50% of your monthly freelance income, you’re doing exceptionally well — and will soon have a solid runway that lends extra financial security. If you can save at least 25% of your freelance income, that’s amazing too. You can build out your buffer fund to last through less busy months. Finally, putting away at least 5%-15% of every freelance paycheck is essential to maintain a net positive cash flow through the upcoming month. 

How much tax should self-employed save?

This depends on your location and the applicable taxation scheme. As a sole trader, you should save 15%-30% of your monthly income for tax season. As an incorporated business entity, your tax contributions may be bigger or smaller (depending on which business and personal income taxes apply to you). If you’re unsure of the rate, ask an accountant in your location for some advice.


6. Figure out how much to pay yourself 

As a solo, it can be hard to maintain a distinction between you and your business. Technically,  not all the money you make freelancing are fully yours (because there are taxes and operating expenses). 

That’s why you should learn to love the concept of gross profit and net income. 

  • Gross profit is the money left over after the service delivery costs are deducted (e.g., $500-$5 payment processing fee = $495 in gross profit from one client).
  • Net income is the money you’re left with after all operating costs and expenses are subtracted from your revenue. (e.g., $5000-$1500 = $3500 in net income). 


Net income is the money you can distribute to yourself as salary, owner’s draw, or regular payment (if you’re a sole trader). 

You can use your past income history to estimate your average annual/monthly net profit. Then decide how much is safe to pay yourself (e.g., your minimum income goal + $1,000 more). 

By knowing your numbers, you can easily determine the minimum and maximum income you can chirp away from your business (or funnel toward savings). 

7. Invest in the right insurance as a freelancer

Good insurance can help you avoid unplanned business spending (like a laptop broken during a business trip). Or more grave cases like facing a lawsuit because you’ve damaged someone’s house while making aerial shots for a real estate agency. 

Just like you need health insurance, your business may need professional indemnity (liability) insurance.

Dinghy, With Jack, and Policybee offer competitively-priced online policies for self-employed people.  Freelancer Union also has ample resources on various insurance options for independents. 

If you’re a digital nomad freelancer, don’t forget to also have good travel insurance with coverage for personal devices (like your phone or laptop). 

8. Get professional help with your freelancer finances

If you’re a new solo, spending money talking to an accountant can seem unnecessary. But if you’re determined to turn your side hustle into a real business, you’ll learn to love and value professional advice.

Rebecca Rash of Beam Content said this best:

“When you’re on a 303 stage of business maturity (aka you run a business), any big financial decision/question gets a meeting with a CPA. “Financial forecasting” is a word I say, and my paperwork is in order.” 

Accountants can help you understand how your taxes work so you can do things by the book. They can also help you figure out what business structure best suits you and point towards other ways for better managing your freelance income. 

If you’re a digital nomad freelancer, you may have to file tax returns and perhaps even pay taxes in more than one country. So, it’s important to understand your tax residency status to avoid tax problems later. Again, that’s where advisors can save you a lot of hustle. 

Finally, you have to plan for the future so look into:

  • Pension plans for freelancers. Are there any private- or gov-sponsored schemes you can use to maximize your savings for the future? See if you can sign on for those. 
  • Saving plans for self-employed. Between high-yield and money market accounts, you have no shortage of options to put away extra monies as an individual or business — and profit from those compounding rates. 
  • Investment opportunities for solo business owners. There are plenty of interesting money instruments in the current markets apart from stocks, bonds, and ETFs. You have micro- and crowd-investing in real estate, and emerging “alt” investment classes like antiquities, art, or commodities. Learn more about your options.


Remember who's boss (you!) 

The financial side of freelancing can often be intimidating, especially if you've never thought of yourself as particularly good at numbers. But remember that your journey as a freelancer will ultimately hinge on your ability to stay in the driver’s seat. Remember: You’re the boss of your business and your money decision. Act like one. Take responsibility for ensuring that you’re charging the best rates, spending consciously, and saving a good deal to keep thriving in the future! 

Note: The information contained in this document is for guidance only and cannot be considered financial, legal, or tax advice.

New call-to-action

About Elena

Elena Prokopets writes content for tech-led companies & software development businesses, marketing to them. Her empathy for the customer, expertise in SEO, and knack for storytelling help create content that ranks well and drives industry conversations.

Elena uses Xolo so she can focus on her solo B2B content writing business without stressing over the compliance and admin overhead.


    Say cha-ching! two ways, with Xolo Go's professional invoicing and expense reimbursement tools.

    Earn with Go