The great news: There’s a wide array of information on freelance finances available to gig economy professionals these days. We can find financial advice in everything from print media to blogs, from television to in-person seminars and from podcasts to live streams.

The not-so-great news: Financial literacy information rarely addresses the tricky topic of freelance finances.

The prevailing financial advice is geared toward people with regular 9-to-5 jobs who are on a typical path to retirement. These are employed individuals who sock away as much as they can in a company sponsored 401(k) or other retirement plan. They work and save steadily over 30-to-40 years and then get out of the work force as soon as possible to enjoy their retirement.

The problem with freelance finances . . .

For artists, this slant on financial information has always posed a problem. They first have to understand what the information actually means and then determine how it applies to the life they lead. For example, steady work isn’t the norm for freelancers. The feast-or-famine scenario is a constant reality. Second, freelancers don’t have access to the same employer-sponsored retirement plans, so resources for building a diversified financial portfolio may be more limited.

Additionally, artists and many freelancers are already doing what they love to do, so the prospect of retiring to do something else rarely factors into their thinking. While others are toiling away at jobs they can’t wait to leave, most freelancers are looking forward to continuing their growth in their respective disciplines.

Consultant budgeting his freelance finances

Recommended reading: Conquer Freelance Taxes & Independent Contractor Tax Deductions

As more and more professionals, in addition to artists, enter into the gig economy — especially an increasing number of millennials — they find themselves facing many of the same hurdles that artists have faced regarding financial planning information.

But freelancers can take control of their financial futures

Taking control of your finances and building a solid, well-diversified asset base will provide you with peace of mind and the ability to weather periods when income is scarce. Proactive management of your finances will also afford you the opportunity to live the life you wish to live.

But how do we work toward financial security when we live our lives outside the “norm” that most mainstream financial guidance is based on? Let’s look at a few ways that conventional financial advice can be re-imagined to better suit the needs of freelancers.

Make your own payroll deductions

A common piece of financial advice is to automate your savings through payroll deductions. However, freelancers don’t usually have a regular payroll schedule. Their inconsistent flow of income makes it difficult for many of them to save and invest their money.

One way to adapt the payroll deduction strategy to the realm of freelance finances is to determine an investment amount that you can comfortably make each month while paying your regular bills. Choose an amount that won’t overburden you in light income months, so you are not tempted to abandon your efforts. This will allow you to establish an asset base that you can contribute even more to during high-income periods.

Determine ahead of time how much of your extra income you will save and invest in flush months to help you stay on track. For example, you may decide that in months where your extra income is more than $100 over your monthly expenses that you will put at least fifty percent toward your investments.

Consider sheltering other assets outside of retirement vehicles

Another common piece of financial advice for conventional employees is to shelter any income-producing assets — such as dividend paying stock, bonds, or mutual funds & ETFs that contain them — in retirement vehicles.

The reasoning for a W-2 employee is that while they are making a steady salary they won’t want to add investment income to their taxable income, as this may cause the investment income to be taxed at a higher rate. By keeping these types of assets in retirement vehicles, their dividends or other income can be earned and reinvested without being taxed. At some time in the future, when someone retires from a traditional job and starts to tap into these retirement vehicles, that income will be taxed at a lower level.

Freelancer on a scooter has managed his freelance finances effectively for slow months by keeping some of his investments cash-fluid.

But for freelancer’s finances vary widely from month to month. So having income-producing investments outside of retirement vehicles may be beneficial.

• During months that you have sufficient income to cover your expenses you can have the dividends or other proceeds reinvested in additional shares of the asset.

• In months that your income is lower than expected you can instead use the investment income as supplemental income.

Most financial institutions now allow you to manage your accounts online, so the ability to easily change between having proceeds reinvested or paid out to you is quite simple. However, this strategy would not be as useful for retirement accounts as you may be assessed penalties for assets you remove from them prior to age 59 and 1/2.

Another useful tip: If you live in high income tax areas such as New York or California, invest in municipal bonds or municipal bond funds — they can provide you with a tax-free source of income.

Most conventional financial advice only recommends municipal bond investments to retirees. Again, the thought is that during your working years there is no need to create a tax-free revenue stream — your savings can instead be invested in assets that have longer term growth potential. As with dividends, the tax-free income that is generated by municipal bonds can either be reinvested, in the case of mutual funds, or used by you as income depending on your needs.

Related reading: The SEP-IRA Explained — Retirement Planning for the Solopreneur

Solopreneur managing his freelance finances by depositing a portion of his earnings as savings

Pay off debt

Paying off debt is high on the to-do list of most financial advice, and rightly so. Credit card debt especially is a drag on your financial health. It gives you little benefit aside from the instant gratification of acquiring items before you have the funds to pay for, and the interest you pay is usually exorbitantly high.

However, paying off debt is in tension with saving for retirement and other purposes. If you focus your excess funds exclusively on paying down debt at the expense of building your assets, you will miss out on years that compounding will be working for you.  Compounding is the wonderful effect in which earnings from your assets create earnings themselves.

The earlier you get your invested assets working for you the more compounding will benefit you. The longer you postpone paying off debt, the more that the effect of compounding is working against you and for the credit card company.

Since many artists and other freelance workers experience uneven income throughout much of their career, you may often have periods in which you will need to draw on your credit.  Often, you will find that your debt and income levels move inversely to one another.

As a result, you may never experience a time when you are 100% debt free.  Therefore, you may never have any savings should you follow the strict advice of waiting until all debt is erased before investing.

One way to address this issue is to determine the total amount of money you have each month to allocate toward paying down debt and building assets. During times that you are striving to reduce high debt levels, allocate the majority of these funds to that while still putting at least a small amount in assets.

Then, as your debt level declines, start shifting the fund allocation so that more is going to asset building.  In this way, your payments will ebb and flow toward the area needing the most attention, while still making progress toward both goals — lowering debt and increasing investments.

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Plan for the future but live in the now

Living your life and enjoying experiences is important to your art. It fills your creative well with ideas and inspirations so you can do your work. Non-artist freelancers also draw from life experience to discover ways to push their business in new and innovative directions.

Conventional financial advisers often insist that you make significant life sacrifices to save for your future.  But curtailing your explorations and experiences too severely can harm your professional growth. Still, ignoring the financial future can be equally damaging. It’s important to find that balance between life experiences that feed your creativity — and fuel your work — with responsibility to your future financial well-being.

When calculating your monthly expenses, be sure to take indulgences into account. You may even choose to match your monthly investment savings with allocations for a “fun” account. Commit to using those funds for whatever strikes your fancy, with no strings attached and no guilty conscience.

As long as your budget also has room for the savings, investment and debt service needs discussed above, your freelance finances will be on track, and you still get to live the life you wanted when you decided to be a freelancer to begin with.

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Consider your circumstances and trust yourself

Managing freelance finances and building a diversified portfolio of assets is challenging for everyone, but freelancer finances are unique. Drawing on the creative and professional skills you already have and applying them to your pursuit of financial well-being can make the journey easier.

You already realize that building your business successfully takes time, perseverance and dedication. The same is true of your finances. Building your assets consistently and incrementally — even if the regular amounts invested are small — will reward you greatly over time.

For artists and other freelancers, there will never be a standard, “cookie-cutter” path to follow for our financial well-being. We must evaluate and re-evaluate our unique circumstances at all times to determine our best moves forward.

‘Herd mentality’ governs a lot of traditional financial strategy. Your ability to think outside of the box will help you find effective ways to maneuver outside of the mainstream.

Your ingenuity will serve you well as you navigate the financial investment waters. You’ve proven to yourself that you can blaze your own trail in your freelance business by drawing on established ideas and your own creative input. Do the same with your financial planning.

Editor’s Note: To get more of David’s helpful insights on freelance finances, watch his SAG-AFTRA presentation here.


David Maurice Sharp is author of The Thriving Artist: Saving and Investing for Performers, Artists, and the Stage & Film Industries. David’s background, including time as a dancer and a choreographer, lets him relate to his audience as an artist and as a financial professional. Named a money hero by Money magazine, David is director of solicitation for Prime Clerk, teaches workshops at HB Studio in NYC and serves as a panelist for The SAG Foundation.