3 Types of Savings Every Freelance Writer Needs

in Money Issues

Jenn Mattern has a nifty post today about money called Expenses You Can’t Afford To Cut written by  . It’s worth a read. And it got me to thinking about another category and that’s savings.

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:

  1. 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.
  2. 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.
  3. 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?

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{ 5 comments… read them below or add one }

Elizabeth West August 4, 2011 at 10:10 pm

I have the first two, but I can’t seem to add anything to them! Grr!!! Of course, being in a long-distance relationship is not cheap, either.
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Lori July 20, 2011 at 10:25 am

Anne, you’ve hit on my worst business area – saving and taxes (to me, they’re one in the same). I’m awful at keeping up with both, though this year I’ve put tons of effort into the tax side.

I have three accounts – personal savings, personal checking, and business checking. When I hold Webinars or classes, I deposit directly into the business checking. When I have direct deposit from other clients, they go straight into the personal checking. The savings account gets fed occasionally (not often enough), and Uncle Sam is getting ten percent of every check to cross this desk.
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Anne July 20, 2011 at 11:40 am

Savings is one of those things I had to learn. I’d put $20 in and take $20 out. But I kept putting the 10% in and eventually some of it began to stick.

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Jenn Mattern July 19, 2011 at 9:46 pm

Excellent point Anne! I’m a terrible saver. Always have been. My talent is in making money. Holding onto it, not so much. That’s my guy’s specialty, so I told him he’ll have to teach me to be “good.” Someday. A big part of it is that I’m always investing the money back in the business. And as long as I see my usual decent growth year-over-year, I’ll probably stick to that. But I like the idea of eventually increasing the money set aside to 30%. Might be a big adjustment, but if one of those slow times ever dares to come around again, it’s always better to be prepared.
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Anne July 20, 2011 at 11:41 am

Jenn, it’s practice practice practice savings as near as I can tell.

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