Getting the Financial Ducks in a Row

What’s on the iPod: Unfaithful by Rihanna

Wow. I’d forgotten what it was like to have a little free time. Yesterday I revised one document, edited another, and then had time to do whatever I wanted. I looked for more work (glutton for punishment), attended my online course (if you’ve not checked out the free courses at Coursera, you’re missing out), and edited a newsletter article. The afternoon? That was mine. I cut out early and enjoyed a book as the rain came down outside.

I received a sizable payment the other day, so I was dividing it among the various places it must go. I have a system that’s simple and works pretty well for me in the year I’ve been using it. There are just certain things we have to account for as freelancers that regular employees don’t. They include:

Taxes. Oh, those nasty taxes! It’s up to us to pay the piper ourselves since our checks come without any deductions. However, my problem has always been the timing – the bill is never due when there’s money in my account. So now that I pay electronically, I take 15 percent off the top of each check that comes in. I pay as I go. So far, the IRS hasn’t fussed (as long as they’re getting their money, right?). I’d check with them before adopting my method (why should we all be in trouble?), but I’ve not paid late fees nor penalties by paying  this way. Honestly, I don’t think they care as long as you’re paying on time or early.

Retirement. We’ll never get the matching funds our 9-to-5 counterparts do, but we can still sock away money on our own. Here I take another percentage of each check and deposit directly into my IRA fund.

Savings. Thanks to my system, I finally have a savings again. The same amount I put into my IRA also goes into my savings. That helps with things like late-paying clients, car repairs, vacations, you name it. If it’s going off the top of each check, I never miss it. I bet you won’t, either.

I’ve also decided to allot about $25 a month to a separate fund for software or equipment upgrades, continuing education, or any conferences that can help further my business goals. It’s only $300, but it’s a start in the right direction, for it gets me thinking of improvements to the equipment and my own skills.

How do you divvy up the funds? What’s your method and how has it worked for you? Do you pay your taxes quarterly or as the checks arrive?

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  • Devon Ellington October 3, 2012 at 1:21 pm

    I love quarterly taxes. I think, though, that for big payments, I'll do as you suggest, and add in some additional payments.

    I need to sock away the savings and IRA stuff again, and I'm putting aside money for the new computer I'll need next year.

    However, the first order of business is making sure the bills are paid, and the other stuff has to happen AFTER.

  • Paula October 3, 2012 at 3:26 pm

    Again, I'm with Devon (other than loving quarterly taxes). I probably make paying bills my priority because I hate it so much when clients don't pay me on time. (Oh! Late-late payer paid, but shorted me a few dollars.)

    After my bills are paid, any remaining funds are saved to go toward the next month's bills. Once I know the next month's bills will be covered I can think about savings, the IRA or the HSA. Of course, that's always the time that something major breaks – not counting the new roof, gutters and siding, I've had more repair costs this year than any other. I'm constantly waiting for the other shoe to drop, appliance-wise.

    The one big payment priority I'd add to your list is: health insurance. My insurance company takes my premium from my checking account on or after the 10th of each much, so on the first of the month I subtract the amount from my checking ledger and forget about it.

    Back to the taxes…I like the idea of paying as the money comes in by or making additional payments. I didn't even know it was possible, or that one could pay electronically (other than for payments made when filing electronically). I need to look into that because two of the four quarterly payments happen to be the same months (June & September) when my property taxes are due. And having the property tax installments so close together doesn't give much time to save up.

  • Anne Wayman October 3, 2012 at 7:44 pm

    Must be in the air. Today I finally got re-setup with downloading after my credit union changed everything about that… so I'm no longer vague.

    I pay myself first with 10% in savings, 10% in tax savings and then I tithe… the rest goes to life.