Being your own boss is an incredible journey, full of freedom and opportunity. You can choose the clients you want to work with and set the schedule for when you should be working. On the other hand, self-employment comes with its own set of financial challenges. Without a steady paycheck, employer-provided benefits, or automatic tax withholdings, managing money can feel overwhelming and exhausting for some.
If you're a freelancer, independent contractor, or small business owner, you need a plan to handle unpredictable income, save for retirement, and stay on top of taxes. Adopting the right mindset will help you achieve financial security and set yourself up for long-term success.
1. Have Business and Personal Accounts
When you’re self-employed, mixing business and personal finances might seem convenient, but it can quickly turn into a financial headache. A dedicated business account helps you see exactly how much your business is making, prevents unnecessary spending, and keeps you prepared for tax time.
How to Get Started
- Open a Business Bank Account
Look for an account with low fees and features that make bookkeeping easier. Many banks offer accounts designed specifically for small business owners and freelancers. - Get a Business Credit Card
Using a business credit card for expenses keeps everything in one place and can help you build a credit profile for your business. - Use Accounting Software
Tools like QuickBooks or FreshBooks automatically track income and expenses, making tax time much easier. - Pay Yourself a Salary
Even if you’re the only employee, transfer a set amount to your personal account each month. This helps you budget better and maintain personal financial stability.
2. Create a Budget and Stick to It
Budgeting feels like an uphill battle if your income fluctuates. But without a plan, it’s easy to overspend in good months and struggle in slower ones. A solid budget helps you manage cash flow, plan for expenses, and avoid financial surprises.
The Basics of Budgeting for Self-Employed Individuals
- Track Your Income
Look at past earnings to determine an average monthly income. If your income varies, base your budget on the lowest earning month. - Categorize Your Expenses
Break down expenses into fixed costs (rent, insurance, subscriptions) and variable costs (marketing, supplies, travel). Don’t forget to include personal expenses like groceries and utilities. - Set Aside Taxes
As a self-employed individual, taxes aren’t automatically deducted from your earnings. A good rule of thumb is to set aside 25-30% of your income for taxes. - Build an Emergency Fund
Having savings to cover at least three to six months of expenses can keep you afloat during slow periods. - Prioritize Savings
Allocate money toward retirement, investments, and future business expenses. Even small contributions add up over time.
Adjusting Your Budget
Your income and expenses can change, so review your budget regularly. If you have a very profitable month, resist the urge to splurge—use that extra cash to pad your savings or invest back into your business.
3. Stay on Top of Tax Filing and Compliance
As a self-employed professional, it’s your responsibility to stay on top of quarterly tax obligations, deductions, and deadlines to avoid penalties and unnecessary stress.
Understanding Your Taxes
Self-Employment Tax
As a freelancer, you’ll pay a 15.3% tax, which includes:
- 12.4% for Social Security (also called the Old-Age, Survivors, and Disability Insurance (OASDI) tax)
- 2.9% for Medicare (which helps with hospital insurance)
So, if your freelance work earns $176,100 in a year, you won’t have to pay the 12.4% Social Security tax on anything over that. But you’ll still pay the 2.9% Medicare tax on all your earnings. Suppose you’re making more than $200,000 as a single person or $250,000 as a married couple filing together. In that case, you’ll need to pay an extra 0.9% Medicare tax on income above those limits.
Income Taxes
Federal Taxes
This is the tax you pay to the U.S. government. How much you owe depends on how much you make. The more you earn, the higher your tax rate could be. The IRS takes care of collecting these taxes. If you're curious about the exact rates, they change each year, and you can check out the 2025 tax brackets for a more detailed look.
| Tax Rate | Single Filers | Married and Filing Jointly | Head of Households |
| 10% | $0 to $11,925 | $0 to $23,850 | $0 to $17,000 |
| 12% | $11,925 to $48,475 | $23,850 to $96,950 | $17,000 to $64,850 |
| 22% | $48,475 to $103,350 | $96,950 to $206,700 | $64,850 to $103,350 |
| 24% | $103,350 to $197,300 | $206,700 to $394,600 | $103,350 to $197,300 |
| 32% | $197,300 to $250,525 | $394,600 to $501,050 | $197,300 to $250,500 |
| 35% | $250,525 to $626,350 | $501,050 to $751,600 | $250,500 to $626,350 |
| 37% | $626,350 or more | $751,600 or more | $626,350 or more |
State Taxes
On top of federal taxes, you must also consider state taxes. Every state has its own rules. Some states don’t charge income tax, while others have their own rates. So, make sure you check the rules in your state, so there are no surprises!
3 Types of State Income Tax
When it comes to state income taxes, each state handles it a little differently. There are three main approaches:
States Without Income Tax
Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming don't charge state income taxes. But just a heads-up: Washington has a 7% tax on long-term capital gains over $270,000 starting in 2024. Even without an income tax, these states might compensate with higher property taxes, sales taxes, or other fees, so it’s good to keep that in mind.
States with Flat Income Tax Rates
Some states keep it simple by applying the same tax rate to everyone’s income. It’s straightforward, but remember that what counts as “income” can vary from state to state. Also, some states tax your income after deductions, while others use adjusted gross income.
The states that follow a flat rate are Arizona, Colorado, Georgia, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Michigan, Mississippi, North Carolina, and Pennsylvania.
States with Progressive Tax Rates
Most states and the District of Columbia have a progressive tax system. This means the more you earn, the higher your tax rate. State tax rates are usually lower than federal rates, with most states ranging from 1% to 10%. Some states don’t even tax the first few thousand dollars of your income. But in some higher-tax states, you could pay up to 13%, and that’s only the state income tax. Don’t forget about other taxes that go on top of that.
Maximize Deductions and Credits
Self-employed individuals have access to several tax deductions that can reduce taxable income, including:
- Home office costs (a portion of your rent, utilities, or mortgage if you work from home)
- Software and tools (design programs, invoicing software, or any work-related subscriptions)
- Business travel (airfare, bus, train, car expenses, hotel or motel costs, meals, and more)
- Charitable acts (charitable donations and volunteer work under your business’s name)
- Marketing and advertising (social media ads, newspaper ads, billboards, promotional events, etc)
- Memberships (civic or public service organizations, boards of trade, chambers of commerce, medical associations, and more
You can contact a tax professional familiar with self-employment to help you determine which expenses are eligible for deductions, ultimately lowering your tax burden and improving cash flow.
Proactive Tax Planning Matters
Staying organized and planning ahead prevent tax season from being a stressful scramble and avoid costly penalties. To guide you, here's a general calendar for 2025:
| Estimated Income Earned Duration | Tax Payment Due Date |
| January 1 to March 31, 2025 | April 15, 2025 |
| April 1 to May 31, 2025 | June 16, 2025 |
| June 1 to August 31, 2025 | September 15, 2025 |
| September 1 to December 31, 2025 | January 15, 2026 |
4. Choose the Right Insurance
At first glance, insurance might feel like an added expense, especially when you’re just starting as a freelancer or small business owner. Also, finding the right insurance might take some time and research. But having the right insurance will help you focus on growing your business and doing the work you love without constantly worrying about the “what ifs.”
Here are different types of insurance you might need as a freelancer or self-employed individual.
Health Insurance
Health insurance is essential because unexpected medical costs can quickly spiral out of control without it. From a routine checkup to an emergency situation, having coverage ensures that you won’t be stuck with a huge medical bill that could strain your finances.
If you’re unsure where to start, the marketplace is a good place to compare plans and find one that fits your budget and needs. Some states also have additional options for self-employed individuals. So, it’s worth looking into any local programs that might be available. You can also reach out to private providers to easily compare benefits and coverages.
Life Insurance
Life insurance provides financial security for your loved ones if something happens to you. Although it’s never a fun thing to think about, knowing that your family will be taken care of financially if the worst happens is reassuring.
- Term life
Typically quicker and more affordable and covers you for a specific period, like 10, 20, or 30 years. If you pass away during that term, your beneficiaries will receive a payout. - Whole life
This lasts for your entire lifetime and often includes an investment component, though it tends to be more expensive.
Disability Insurance
If you were to get sick or injured and unable to work for an extended period, disability insurance helps replace your lost income. Without it, you could find yourself in a tough spot financially if you’re unable to generate income due to illness or injury. There are short-term and long-term disability policies, so you’ll want to consider how much income replacement you’d need and how long you’d need the coverage.
Business Insurance
The type of business insurance you need will depend on the kind of work you do. Here are a few common types of coverage that self-employed individuals might consider:
- Liability Insurance
This is crucial if you provide services or products to clients. If a client claims you were negligent and sues you, liability insurance will cover your legal fees and any settlements or judgments against you. - Errors and Omissions Insurance
If you’re offering professional services, such as legal, financial, or medical advice, this type of insurance protects you in case a client claims that your work was faulty or caused them financial loss. - Property Insurance
If you have business assets like equipment, inventory, or office space, property insurance can help cover the costs of replacing or repairing those items if they’re damaged or stolen. Even if you work from home, you might want to consider this coverage, as your home insurance might not cover business-related losses.
5. Build and Maintain Your Good Credit
Maintaining a strong credit score is one of the most important things you can do for your financial health, personally and professionally. For self-employed individuals, having good credit can open doors to better financial opportunities, like business loans, favorable interest rates, or a bit of financial peace of mind during those slow months.
Check Your Credit Report Frequently
Checking your credit report regularly gives you a chance to spot errors or potential fraud early on, allowing you to take action before they affect your score. Each week, you’re entitled to a free credit report from Equifax, Experian, and TransUnion, and get the reports at AnnualCreditReport.com. If you want more frequent updates, credit monitoring services can alert you to any changes in your credit history, helping you stay on top of your score.
Stay Consistent with Timely Payments
Your payment history accounts for about 35% of your credit score, making it a critical factor. This means that if you’re late on a payment, even just once, it can take a big chunk out of your score, and it could stay on your record for up to seven years. To make sure this doesn’t happen, setting up automatic payments will get your bills paid on time. This includes everything: credit cards, loans, utilities, and even your rent. If automatic payments aren’t your thing, setting reminders on your phone or calendar can do the trick, too.
Avoid Maxing Out Your Credit Cards
How much of your available credit are you actually using? The answer here is important. It’s called your credit utilization ratio, and it’s a major factor in your credit score. Ideally, you want to keep your credit card balances below 30% of your available credit. Also, paying off your credit card completely each month prevents you from racking up interest charges.
Have a Variety of Credit Accounts
While it sounds counterintuitive, having a mix of different types of credit can help your score. For example, if you mostly rely on credit cards, consider adding a small personal loan or car loan to your mix. This helps show credit bureaus and lenders that you can handle different kinds of debt. Just be sure not to open too many new accounts at once—this could negatively impact your score.
Hold on to Your Old Credit Accounts
Your credit history length makes up about 15% of your score, and older accounts can contribute to it. Even if you’re not actively using an old credit card, it’s a good idea to keep it open. The strategy here is to avoid closing old accounts, especially if they don’t have an annual fee. You don’t want to shorten your credit history by closing old accounts that could be adding value to your score.
Pay Off Your Debts Strategically
Having too much debt can hurt your credit score, so make a plan to pay it down and be consistent with it. Start by paying off your high-interest debt, like credit card balances. Once those are paid off, you can shift your focus to other forms of debt. Another strategy is to consolidate your debt into one loan with a lower interest rate. This can simplify payments and lower the total interest you pay over time.
Dispute Incorrect Information on Your Credit Report
Mistakes can show up on credit reports, and that’s why it’s a good idea to regularly check and dispute any inaccuracies. If you notice something that doesn’t belong to you or looks incorrect, you can file a dispute with the credit bureau. They’ll investigate and correct any errors.
6. Create Multiple Income Streams
Being self-employed and relying on a single source of income can be risky. Market shifts, seasonal trends, or client losses can quickly impact your earnings. Diversifying your income streams can help you cover financial gaps.
Increase the Variety of What You Offer
Grow the range of services or products you already offer while reaching new clients or audiences. For example, if you’re a freelance writer, maybe you could start offering editing or proofreading services as well. Or, if you're a photographer, you could sell digital prints or even create an online course teaching others how to take better photos.
Build Income That Works for You
Passive income is a great way to earn money while you sleep. It takes time and effort to set up, but it will kick off once everything is set up. For example, you could invest in rental properties or the stock market, where you can earn income from rents or dividends. Meanwhile, if you’ve got a knack for creating digital products, consider selling e-books, templates, or online courses that can bring in sales even when you're not actively working on them.
Engage in Contract Work for Extra Income
The beauty of freelancing is that you can pick up short-term projects that give you extra income during the quieter times and choose the work that fits your schedule and interests, giving you more flexibility. For instance, if you're a web developer, and you normally focus on long-term projects. During your downtime, you could take on smaller, one-off projects like designing a website for a local business or providing tech support.
7. Keep on Learning About Financial Literacy
As important as it is to make more money, it's equally important to make wise decisions with the money you’ve already earned. The more you learn about managing money and other financial topics, the better equipped you’ll be to make informed choices that align with your long-term goals.
Stay Informed with Books, Blogs, and Podcasts
There are so many great books, blogs, and podcasts dedicated to financial literacy that you can start exploring. As for podcasts, you can listen while you're driving, doing the dishes, or working out—it’s a great way to fit in some financial education while you're going about your day.
Enroll in Online Learning Programs
If you want something a bit more structured, you can enroll in courses about finance from online platforms like Coursera, Udemy, and LinkedIn Learning. Learning about things like tax planning, retirement accounts, or how to optimize your investments can make a huge difference in how you manage your money—and can even help you save big in the long run.
8. Invest For Your Retirement
It’s easy to push retirement planning to the back of your mind, especially when you’re focused on running your business and paying the bills. But the sooner you start, the better off you’ll be. And it’s never too late to start thinking about it, too.
There are retirement plans specifically designed for self-employed individuals like you. These plans give you the flexibility to save for your future without the need for a corporate pension plan.
SEP-IRA (Simplified Employee Pension Individual Retirement Account)
A SEP-IRA is one of the easiest retirement options for the self-employed. It’s easy to set up, flexible, and lets you put a maximum of 25% of your net profit. On top of that, it has a higher annual contribution limit than standard IRAs, so you can save a lot more if you're having a particularly good year.
Solo or One-Participant 401(k)
If you want to maximize your retirement savings, you should look at the Solo 401(k). With this plan, you can contribute both as an employee and an employer, which means you can put away a lot more money. It’s a great choice if you’re running a business alone and want to take full advantage of tax-deferred growth while saving for retirement. Moreover, the contribution limits are much higher than traditional IRAs, so it’s perfect if you can contribute more to your retirement account.
Traditional or Roth IRA
While the contribution limits for IRAs are lower than SEP-IRAs and Solo 401(k)s, they still offer some valuable benefits. You have two choices: a Traditional IRA, where you get tax deductions on your contributions now (but pay taxes when you withdraw in retirement), or a Roth IRA, where you pay taxes on the contributions now, but your withdrawals in retirement are tax-free. Moreover, these accounts are relatively easy to set up and maintain, so it’s an accessible option for anyone.
9. Set Aside an Emergency Fund
A gig worker's earnings can be unpredictable. Today, you might be busy managing numerous food delivery orders or working with several clients, but tomorrow, you could find yourself with no tasks at all. And that makes it incredibly important to have an emergency fund you can tap into whenever necessary.
Why You Need an Emergency Fund
- Unpredictable Earnings
Unlike regular employees who receive a steady paycheck, your earnings might change monthly. A solid emergency fund ensures you can cover essential expenses even during slow periods. - Sudden Expenses
Life happens—your car breaks down, medical bills pop up, or your laptop suddenly stops working. Having savings aside can help you handle these situations without relying on high-interest credit or loans. - Business Stability
Market conditions and client demands can shift quickly. An emergency fund allows you to navigate downturns without stressing about cash flow. - Peace of Mind and Confidence
Knowing you have financial backup reduces stress. It lets you focus on growing your business without constant money worries.
How Much Should You Save?
A good rule of thumb is to aim for at least three to six months’ worth of living and business expenses. This gives you enough cushion to cover your basics. If your income is a bit unpredictable or seasonal, it’s a good idea to aim for more so you’ve got extra security in place.
Setting Up Your Financial Backup
- Begin with a Small Fund and Grow
If saving several months’ worth of expenses feels too much, begin with a smaller goal, like one month’s expenses, and then build up from there. - Schedule Automatic Transfers for Consistency
Schedule regular contributions to your emergency fund to make adding money to it a habit. - Keep Your Savings Close and Available
Consider depositing your savings in a high-yield savings account that you can access quickly whenever needed. When you let them sit, they earn interest over time.
Your Path to Financial Security
Being self-employed comes with tons of freedom, but it also means you need to take charge of your financial future. On top of these financial strategies for contractors and freelancers, having reliable, quick access to funds can make all the difference. Giggle Finance is here to help you out. We offer fast, flexible financing options for self-employed professionals like you.
- Quick Access to Funds
When things hit the fan, you don’t have days to wait. With Giggle Finance, you can get the funds you need in minutes—no lengthy approval processes. - No Credit Requirements
Worried about your credit score? Don’t be. Your credit score isn’t affected when you apply, so there’s no need to stress about that. - Flexible Repayment
Repay based on the repayment plan you chose based on your financial situation. This makes managing your cash flow easier, especially when business is slower. - 100% Online
Skip the bank visits and paperwork. Apply for financing for self-employed professionals from anywhere, anytime—it’s all done online.
So, if you ever find yourself in a tight spot, know that Giggle Finance has your back. Apply now for a cash advance for freelancers, independent contractors, and small business owners today!
Disclaimer: Giggle Finance provides Revenue-Based Financing programs for business purposes only. Any mention of any loan product(s), consumer product(s), or other forms of financing is solely for marketing and educational content purposes and to help distinguish Giggle Finance’s product from other comparable financing options available in the market.