One of the biggest fears for freelancers is not knowing where and when they will earn significant income. Financial experts often emphasise the importance of mastering financial rules in books and other resources. It’s not just about having the right skills or landing high-paying gigs but also about applying the financial rules we will be discussing in the blog post. So, the question is: Are you ready to become a wealthy freelancer? You can say the “Yes” out loud and put these 10 financial rules for freelancers into practice. 

Rule #1: Take Your Cash Flow Serious

Imagery from freepik

In freelancing, cash flow is king. There may be months when money comes in steadily, and other times when it slows down, which can be frustrating when you’re putting in the work but not seeing the financial results. The first financial rule to quickly learn is to prioritise getting paid consistently. You might be wondering how to achieve this. To do so, aim to secure recurring clients, consider monthly retainer contracts, and always save a portion of your income for slower months. 

Even if you earn a large amount in one month, without consistent cash flow, it can be challenging to sustain your freelance business.

Resources:

• Freelancers Union: How to Create a Steady Income as a Freelancer
• How to Do Cash Flow Analysis? The Ultimate Guide
• FreshBooks: How to Manage Freelance Cash Flow
• 6 Strategies to Secure Recurring Revenue as a Freelancer
• Invoice Software for Freelancers: Get Paid Faster
• The Freelancer’s Guide To Retainers

Rule #2: Always Have a Rainy Day Fund

Freelancing can be an unpredictable journey, especially when you are just starting out. There are always expenses to cover, such as data subscriptions, food, software payments, and other necessities. It becomes even more challenging when projects are on hold, waiting for clients to get back to you or when clients delay payments. A smart freelancer always has an emergency fund. You want to aim to save at least three to six months’ worth of living expenses.

Having a safety net not only protects you from financial stress but gives you peace of mind to say no to low-paying gigs that don’t align with your long-term goals.

• Building Financial Security: An Easy Guide to Building Your Emergency Fund
• Emergency Fund Calculator
• Five Crucial Questions To Ask Before Considering a Loan
• Emergency Fund Basics for Freelancers
• Guide to Emergency-Proofing Your Finances

Rule #3: Charge What You’re Worth

I wrote a blog post on 10 Things I’d Do Differently If I Started Freelancing Again, and stated that one of the biggest mistakes I made early on was undercharging. As freelancers, it’s tempting to accept low-paying jobs just to secure more work or think that will allow the client to patronise your services consistently. But the truth is, undervaluing your skills will hurt you in the long run. Make it a rule to charge what you’re worth from day one.

You want to begin researching industry rates, communicate your value clearly to clients, and be willing to negotiate. When you price yourself right, you’ll not only earn more but also attract clients who respect your expertise.

Resources:

• How to Set Your Freelancer Rates and Project Pricing 
• Freelance Rate Calculator: What to Charge Clients
• Glassdoor Freelance Rate Insights by Industry
• How to Negotiate Rate As a Freelancer: Tips and Tools for Beginners
• Freelancers: How to Overcome the Fear of Charging What You’re Worth

Rule #4: Diversify Your Income Streams

One of Zig Ziglar’s quotes states, “Don’t count on just one income stream. Build multiple sources, so when one slows down, the others keep you moving forward.”

Relying on one source of income as a freelancer is a very risky step in wealth creation. Learning about strategic wealth creation. When you ask yourself the question of what happens if that one client leaves or that income stream dries up? If you don’t have a secured answer, then you want to consider diversifying your income quickly. 

Sit down and evaluate your business to identify services you can turn into multiples. For instance, if you write, consider offering editing, content strategy, or consulting. If you design, think about adding branding, social media graphics, or even courses. 

Consider adding new services to your offering, creating passive income through products like eBooks or courses, or exploring affiliate marketing and platforms such as Upwork, Fiverr, and LinkedIn, as well as your personal website. 

The more diverse your income streams, the more secure your financial future will be. 

Rule #5: Budget Like a Business

Just like a business, freelancers need a budget. You want to plan for every penny that enters your account, or else you become a reckless spender and become broke before the next pay cheque. By now, you already have a figure that comes into your account every month.

Take some time to sit down and carefully analyse your income and expenses. Make sure to allocate funds for taxes, tools, and personal spending. You can jot them down in a notebook, use financial planning apps, or set up automated payments directly from your bank app. You might want to read this blog post on 6 Business Expense Tips You Can’t Afford to Ignore. 

A clear budget keeps you in control of your finances, ensuring that your income isn’t wasted and you’re saving toward your goals. Set realistic targets, track expenses, and stay disciplined.

• 15 Unnecessary Business Expenses That Are Draining Your Purse
• 16 Best Passive Income Ideas to Make Six Figures 
• Budgeting Tool for Freelancers
• How to Set Up a Freelancer Budget
• Freelancer Budget Template (Free Download)
• How to Track Your Expenses as a Freelancer

Rule #6: Don’t Forget Taxes

You don’t want to be someone who is making a lot of money but is nonchalant about taxes. As a freelancer looking to build wealth, it’s important to remember that you are responsible for your taxes. Therefore, always make sure to set aside a percentage of every payment.

Create a system to save a portion of your income for taxes, whether that’s 15-30%, depending on your location. Stay on top of this rule, and you’ll avoid nasty surprises come tax season.

Resources:

• A Freelancer’s Guide to Taxes – TurboTax Tax Tips & Videos
• Self-employed individuals tax center | Internal Revenue Service
• Freelance taxes: A beginner’s guide | QuickBooks
• Everything you need to know about taxes for freelancers | Legislation | Striive

Rule #7: Invest in Your Growth

In freelancing, you are your business. That means the more you invest in yourself, the greater the returns. You want to allocate part of your earnings to personal growth, whether it’s investing in new software, upskilling with courses, or hiring a coach.

Investing in the right tools and education can exponentially increase your earning potential and help you stay ahead in an ever-evolving freelance market.

• Coursera: Online Courses for Freelancers
• Skillshare: Learning Resources for Freelancers
• Top Freelancing Courses Online – Updated [October 2024]
• HubSpot Academy: Free Freelance Marketing Courses

Rule #8: Create a Retirement Plan

Freelancers should be open to the idea of achieving early retirement, as it can serve as a powerful motivator for them to dedicate themselves to securing financial independence. It is imperative for freelancers to proactively devise a personalised retirement plan at an early stage. You want to explore the option of setting up an Individual Retirement Account (IRA) or a similar retirement savings account that aligns with the specific regulations and opportunities available in your respective countries.

The sooner you start investing in your future, the more wealth you’ll accumulate, allowing you to enjoy long-term financial security.

• Individual Retirement Account (IRA): What It Is, 4 Types
• Important Financial Rules If You Are Thinking Of Retiring Early
• How to Build Your Own Retirement Plan

Rule #9: Say No to Bad Clients

Declining to work with certain clients might seem counterintuitive, but it can actually be a smart financial move. 

Problematic clients who consistently pay late, expect too much for too little, or create unnecessary stress can end up consuming a significant amount of your time and resources. Remember that “time is money.”

It is important to be able to say “no” when necessary in order to prioritize your business goals and vision. Allowing others to dictate your decisions is a sign of weakness. Identify clients who do not respect your work early on and learn to say no to them. Focus on building relationships with high-quality clients who value your work and pay on time. By demonstrating your commitment to your vision, you will attract clients who approach your work with the same level of seriousness.

• The Power of No: A Tough Statement That Simplifies Your Life
• Difficult clients got you down? 6 freelancer tips for working with frustrating clients

Rule #10: Set Long-Term Financial Goals

Freelancing is a journey, and to attain wealth and success, you need a map. Set both short-term and long-term financial goals. Whether it’s saving for a down payment on a house, paying off debt, or building up your freelance business to six figures, having clear goals will guide your decisions and keep you motivated.

Track your progress and adjust your goals as needed, but always keep your financial future top of mind.

• Goal setting for freelancers: A Comprehensive Guide
• Financial tips for freelancers and creators: How to manage Your finances effectively 
• Freelance Goal-Setting Tips to Achieve Your Dreams

In conclusion,

The above are 10 really valuable financial rules you should live by as a freelancer looking to build wealth and success. Only break them at your own peril. What other financial rules do you think should be on this list? You can write yours in the comments.