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5 Types of Savings Every Freelancer Should Have

5 Types of Savings Every Freelancer Should Have

By Joel Witherington
Mar 26, 2023
8 min read

One of the best parts of being a freelancer is right there in the name – being free! You can decide when, where, and how you work. However, this freedom comes with plenty of responsibilities, and none are more important than managing your finances effectively.

When you work for someone else, your employer will usually make deductions from your pay to account for taxes, retirement, and sometimes even benefits, such as health insurance. When you’re working for yourself, you have to take care of all of that on your own. Doing so can easily become overwhelming, so it helps to have a clear plan of action when it comes to keeping track of your finances.

In this post, we’ll explore five types of savings to help you achieve financial peace of mind as a freelancer:

Personal
Business
Taxes
Buffer or Emergency Fund
Retirement

Read on to learn more about each type of saving, why it’s important, and how to incorporate it into your financial plan. We’ll also share some broader tips on tracking your finances, setting a budget, and using the right tools to keep your freelance career thriving.

What Types of Savings Should You Have?

1. Personal Savings

Your personal savings are all about covering the everyday costs of living – the nonnegotiables of life. As a freelancer, you can’t rely on an employer to withhold taxes or contribute to benefits on your behalf, so it’s vital to have a clear plan for covering your basic needs. Personal savings generally go toward:

Housing or rent costs
Groceries
Regular bills (e.g., utilities)
Transportation costs (e.g., gas, public transit, car or bicycle maintenance)

To figure out how much you need for personal savings, start by calculating your average monthly living expenses. A great way to do this is to create a budget that outlines how much of your monthly income you spend on essential bills. This will help you see exactly where your money is going – and how much you’ll have left to set aside for other types of savings. Most importantly, a detailed budget helps you avoid spending more than you earn.

2. Business Savings

Separating your personal and business finances is one of the most important moves you can make as a freelancer. Business savings are funds dedicated solely to expenses related to running and growing your freelance venture, such as:

Professional software or tools
Website hosting and maintenance
Office supplies
Hardware (e.g., laptop, printer)
Marketing and advertising

By keeping your business finances in a separate account, you’ll have a clear record of every incoming and outgoing transaction related to your work. This makes it easier to track cash flow and identify deductible expenses when it’s time to file taxes. Many accountants suggest opening a business-only bank account, which can be done via traditional banks or even via providers like PayPal or Wise for low or no fees.

Freelancers often find that keeping around three months’ worth of average business expenses saved is a solid safety net. This gives you a buffer if, for instance, a major client is late paying an invoice or your workload temporarily decreases.

3. Taxes

Nobody enjoys thinking about taxes – but for a freelancer, it’s essential. Unlike traditional employees, freelancers don’t have an employer withholding income taxes on their behalf. Instead, you’re responsible for figuring out how much you owe, filing the proper forms, and paying on time.

Here are some steps to stay on top of your tax obligations:

Register as self-employed: Before you start working, make sure you’re registered appropriately in your region.
Understand local tax laws: Self-employment tax rules can vary. Familiarize yourself with the regulations where you live to avoid penalties.
Track all business income and expenses: Detailed records make it simpler to calculate taxes and claim deductions.
Put money aside for taxes: A common guideline is to set aside around 20% to 35% of your monthly earnings. Some freelancers prefer a round figure like 30% to be safe.
Keep an eye on deadlines: Note when your tax return is due and stay ahead of it.

If you find taxes complicated or intimidating, consider hiring an accountant or using accounting software that simplifies the process. Doing so may cost money up front, but it can save you from potential errors and penalties in the long run.

4. Buffer or Emergency Fund

Freelancing can be unpredictable. One month, you may be inundated with work; the next, you’re scraping by. To handle those fluctuations – and the unexpected hiccups in life – you’ll want to build a financial buffer (also called an emergency fund).

Establishing this fund is straightforward:

Look at your average monthly personal and business expenses.
Decide how many months’ worth of expenses you want to save. While some people think one or two months’ salary is enough, three to six months is generally better.
Treat these savings like a nonnegotiable bill – “pay” into your emergency fund each month so it accumulates over time.

This emergency fund isn’t just for covering slow months; it can also protect you from sudden expenses, such as medical bills or car repairs, so you’re not forced to dip into your long-term savings. Likewise, if you start earning more money, don’t just spend the surplus. Recalculate your buffer and increase the total you have saved.

5. Retirement

Even the most passionate freelancer doesn’t want to work forever! You might not have an employer contributing to a pension or retirement fund on your behalf, so it’s up to you to build your own. The sooner you start, the more time your money will have to grow.

Here are some ways to make it happen:

Include retirement in your monthly budget: After calculating personal bills, business costs, and taxes, put a set percentage directly into a retirement account.
Consider long-term investments: Research retirement vehicles such as Individual Retirement Accounts (IRAs) or other country-specific programs if you want your money to grow over time.
Review your retirement contributions annually: As your earnings increase, you may want to boost your retirement contributions as well.

Knowing you’re securing your future will give you peace of mind and enable you to enjoy the flexibility of freelance life in the present.

How to Keep Track of Your Finances

Now that you understand the five types of savings every freelancer should have, let’s look at some practical ways to keep your finances organized and under control.

Set (and Stick to) a Budget

Your budget is the cornerstone of your freelance finances. At its simplest, it means spending less than you earn. In reality, that can be challenging when you’re juggling client invoices, uncertain payment dates, and personal needs. That’s why a detailed budget matters. Setting one means following these steps:

Outline all income sources: Include only the money you’ve been paid (as opposed to invoiced but not yet received).
List every expense: Separate personal and business expenses so you can see exactly where your cash is flowing.
Review and adjust regularly: Income and expenses can fluctuate monthly, so you might need to tweak your budget often.

Once you’ve tallied up your total income and expenses, you can figure out your net income by using a simple formula:

Total income – expenses = net income

Your net income is the money that’s left after covering everything essential. This remainder can then be split into personal, business, emergency, and retirement savings. Remember, your net income is subject to taxes. Be sure to set some money aside each month for those.

Use Accounting Software

Manual spreadsheets work well for some freelancers, but software can streamline financial tracking. Many accounting tools offer helpful features like:

Automated income and expense tracking
Integration with bank accounts and credit cards
Invoicing and payment reminders to make billing clients simpler
Estimates or calculations for taxes

If you need a starting point, check out this guide to accounting tools for freelancers.

If you’d rather avoid the stress of managing your finances altogether, and your budget will allow it, you could hire an accountant.

Plan for Irregular Pay and Breaks

Freelancing often involves unpredictable workloads. Some months might be overflowing with client projects, while others are quiet. Budgeting for these ups and downs is part of being your own boss. Having that emergency fund is crucial but so is planning for downtime and breaks. Burnout is real – giving yourself time off helps maintain both your health and the quality of your work.

By setting aside extra savings during high-earning months, you’ll ease the financial strain during less busy periods. This forward-thinking approach also means you can plan regular breaks or vacations without worrying too much about missing future income opportunities.

Keep Monitoring and Be Adaptable

Freelancing changes fast. Your business might expand suddenly, or you might want to pivot to a new niche. Regularly check your income, review upcoming expenses, and revise your budget as needed. Being flexible with your finances is key to thriving in the freelance world.

Take the Next Step

Financial planning is just one part of the freelance puzzle. Whether you’re just starting out or looking to sharpen your skills, Knowadays offers a range of self-paced, CPD-accredited courses to help you succeed. From perfecting your craft in proofreading, editing, or writing, to building a successful freelance business, we have a course to meet your needs.

Interested in trying one of our courses? Sign up for some free lessons today!

Updated on March 31, 2025