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Managing your finances as a freelancer

Key takeaways

  • Freelancers sometimes struggle with uneven cash flow.
  • Take proactive steps to save for retirement.
  • Research your health insurance options.

After graduating from a master's program, Melanie Lockert struggled to find a full-time job. For two years, she stayed afloat by babysitting, cleaning houses, and walking dogs.

During that time, Lockert started a blog called to chronicle her adventures in debt repayment and the search for meaningful employment. Finally, she found a job in her field.

It didn’t pay a lot, but she had insurance and she still had her side hustles to help her chip away at her education debt, which stood at $68,000 by the time she graduated.

But after working for an employer for a while, she realized that she could earn more on her own than she could in the office job—so she struck out on her own permanently.

“It sounds crazy—I was broke and in debt and then I decided to quit,” Lockert says.

She’s in good company, particularly now as people reconsider where and how they work due to COVID. In 2022, there were 60 million freelancers in the United States—up from 53 million in 2014, according to a study commissioned by Upwork, an online marketplace for freelancers and agencies. That accounts for nearly 40% of the economy, up from 36% in 2021.1

Whether you freelance full time or have a side gig in your off hours, it takes some financial know-how to make it work. Here are 3 important financial matters to plan for.

1. Cash flow

Freelancers sometimes struggle with uneven cash flow. Checks may not arrive when you expect. For people accustomed to having a full-time job where cash is seamlessly deposited into their bank account like clockwork, it can take some getting used to—and some savings to tide you over.

Be sure to pay yourself a salary, Lockert suggests. You may also want to consider keeping your business and personal checking separate. That’s because you will need to keep records to help substantiate business expense deductions such as office supplies. Even if your business is something with extremely low overhead, you may find yourself paying a little extra for mundane things. “I use more electricity now because I work from home, and I drink more coffee at home now. I even use more toilet paper,” Lockert says.

As a self-employed person, you may be able to deduct the cost, or part of the cost, of your qualified business expenses—so it may make sense to track them apart from personal expenses. For more information, visit

Because freelancers don’t have the luxury of knowing that another paycheck is automatically coming in 2 weeks, it’s vital to establish an emergency fund and keep paying into it regularly. Retirement savings have to be a high priority as well. It’s easy to let savings slip, but you should treat retirement savings like money you save to cover taxes—it’s something you can’t afford to ignore.

Fidelity’s 50/15/5 saving and spending guidelines suggest that essential expenses should account for no more than 50% of your after-tax income.

Consider saving at least 15% of your pretax income for retirement. That includes any retirement savings contribution or match from an employer, where applicable.

Then it’s a good idea to save 5% of your after-tax income for emergencies. First, save at least enough to cover 3 to 6 months’ worth of unexpected expenses. Once there, consider continuing to save 5% of take-home pay for short-term savings goals.

As a freelancer, you should also get in the habit of saving money for taxes.

Read Viewpoints on 6 must-know tax tips for the self-employed

2. Saving for the future

The freelance hustle may be fine when you’re young, but eventually you may want to stop working and take it easy. Without an employer to push you into saving for retirement by automatically enrolling you in a retirement savings plan, you need to take proactive steps to save on your own.

One of the ways to accomplish this is by establishing a tax-advantaged retirement account that allows you to make regular contributions. There are a few options for freelancers, including a traditional or Roth IRA.

In 2023, the annual contribution limit for IRAs, including Roth and traditional IRAs, is $6,500. If you're age 50 or older, you can contribute an additional $1,000 annually. Contributions to a traditional IRA may be deductible for the year the contribution is made.2 Earnings and contributions grow tax-deferred until retirement.

Contributions to a Roth IRA won’t get you a tax break today, but you may be able to withdraw contributions and earnings tax-free in retirement.3 A Roth IRA may be particularly advantageous for freelancers as you may have the ability to take penalty-free withdrawals of contributions at any time—although you should be careful about using your retirement savings as a piggy bank for short-term needs. That could defeat the whole purpose of saving for retirement.

There are special rules on Roth distributions, be sure to check with your tax preparer or the IRS before making withdrawals.

In addition, you could set up a retirement account specially designed for independent workers and small businesses that could potentially let you save even more money, like a SEP IRA, a SIMPLE IRA, or a self-employed 401(k). Even if you can’t imagine scraping off 15% of your income for retirement savings at the moment, putting away a little bit now and gradually ramping up to 15% can be extremely worthwhile.

“This is the biggest mistake I made—waiting to start saving for retirement,” says Lockert. “But after paying way more taxes than I was expecting, I wanted to know how I could lower my taxes and save more."

This is a really key point. Contributing to a retirement account that offers a tax deduction could be a way to solve 2 problems at once: a lower tax bill and federal income tax-free growth on contributions.

Read Viewpoints on No 401(k)? How to save for retirement

3. Insurance

Crossing your fingers and hoping for the best isn’t a great strategy when it comes to your health or your finances. On the other hand, buying insurance can be expensive.

If you’re enrolled in an eligible high-deductible health plan, a health savings account (HSA) may be part of the solution. As a freelancer, you don’t get a company match for your retirement savings like full-time employees do, so an HSA could be a good place for you to save for the long term.

Here are the 3 tax advantages HSAs offer:4 

  • Contributing: Any post-tax money you contribute to an HSA is tax-deductible, up to the IRS limit. If payroll deduction is an option for you, those contributions are usually pre-tax. 
  • Spending: Using your HSA money to pay for qualified medical expenses is always free from federal income taxes. 
  • Investing: If you choose to invest your HSA money, any growth is free from federal income taxes.

If you are enrolled in Medicare, you can't continue to contribute to an HSA, but you can take money out of an HSA for any other reason besides medical expenses without incurring a 20% penalty. In that case the money you take out is subject to income tax, like a traditional IRA.

Read Viewpoints on 3 healthy habits for health savings accounts

Disability insurance is another important consideration as well. Employers often include some amount of disability insurance as a perk. But as a freelancer, you need to take steps to protect your income if you can’t work for a short or long period of time.

Read Viewpoints on Benefits basics for self-employed workers

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This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

1. "Freelance Forward 2022" survey, Upwork, December 13, 2022, 2.

For a traditional IRA, for 2023 full deductibility of a contribution is available to covered individuals whose 2023 Modified Adjusted Gross Income (MAGI) is $116,000 or less (joint) and $73,000 or less (single); partial deductibility for MAGI up to $136,000 (joint) and $83,000 (single). In addition, full deductibility of a contribution is available for non-covered individuals whose spouse is covered by an employer sponsored plan for joint filers with a MAGI of $218,000 or less in 2023; and partial deductibility for MAGI up to $228,000. If neither you nor your spouse (if any) is a participant in a workplace plan, then your traditional IRA contribution is always tax deductible, regardless of your income.

3. For tax year 2023, if you're single, the ability to contribute to a Roth IRA begins to phase out at MAGI of $138,000 and is completely phased out at $153,000. If you're married filing jointly, the phaseout range is $218,000 to $228,000. 4. With respect to federal taxation only. Contributions, investment earnings, and distributions may or may not be subject to state taxation.

Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.

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