Savings aren’t exactly expenses, but I find when I treat them as expenses I tend to be more rigorous about putting money aside. Some experts say freelancers should save about 30 percent of the income. Although that much may be difficult in the beginning, it’s a goal worth aiming for.
I save in three basic categories:
- What I call my prudent reserve. This is the first place I save my money and I put 10 percent of every nickle I make in this account, even if I have to take it right back out. This is the account I use to smooth out the ups and downs of freelance writing. When my income is high I actually have several other subcategories here, including savings for my cat’s inevitable trips to the vet, car repair/new car, vacation etc. This means I’m often putting more than 10 percent in the account. The goal, of course, is to keep at least three months income in your prudent reserve account at all times; six months is even better. And when you’ve got a substantial amount like that it makes negotiations so much easier because you won’t be tempted to cut your rate.
- Savings for taxes. The actual percentage will depend on what your tax professional suggests or what you work out based on your income. This is the account you pay your quarterly self-employment taxes from if you’re in the U.S. There’s nothing like knowing you’ve got the tax money ahead of time.
- Business savings. This account is savings for your freelance writing business. This is the account I use to pay things like business licensing, new computer equipment and classes I want that will enhance my writing career. Again, this account gets 10 percent of everything I earn.
When I’m saving regularly and tracking my income and expenses and planning my earnings I find my freelance writing business runs pretty smoothly.
What kinds of savings account do you have?