The Financial Habits Every Freelancer NEEDS to STOP STRESS and Create Long Term Financial Stability [ Freelancing to Financial Freedom ]
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Are you making expensive financial mistakes as a freelancer without even realizing it?
Freelancing offers freedom and flexibility, but inconsistent income, taxes, retirement planning, and health insurance can quickly become overwhelming if you don't have a solid financial system in place.
In this episode, hear the second half of Kiri’s conversation with the Finance Girlies, Emily Batdorf and Cassidy Horton, as they share practical strategies to help freelancers take control of their money, avoid common pitfalls, and build long-term financial stability.
By listening to this conversation you'll learn:
How to separate business and personal finances, prepare for taxes, and avoid costly cash flow mistakes so that you can have a more stable freelance business.
The best retirement savings options for freelancers and how to choose the right account as your income grows.
Practical ways to manage health insurance costs and stay confident during market fluctuations.
Play this episode now to discover the simple financial habits that can help you keep more of what you earn and build a more secure freelance business.
Socials: @thefinancegirlies (Instagram); LinkedIn: /cassidybhorton and /emilybatdorf
Connect with Kiri, the host:
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Episode Transcript:
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[00:00] Jump into this episode to learn about the financial habits every freelancer needs to stop stress and create long-term financial stability. Welcome to the Freelance to Freedom podcast. This podcast helps early freelancers learn how to get more clients with clear strategies that help your freelance business make more money in less time. I'm your host, Kiri Mohan, founder of Flourishing Freelancer. Let's dive in.
[00:23] By the end of this episode, you're going to find out the financial habits you need in order to stop stress in your freelance business, retirement planning as a freelancer and how to do that, and of course the big topic of health insurance. Stay tuned. We did kind of talk about, you know, making sure you have enough money set aside for taxes and emergencies, but let's— I just mentioned retirement.
[00:46] How do you guys— do you guys handle that? How do you prioritize saving for retirement when you don't have that access to a traditional workforce plan? I personally started out early on in my freelance business just putting money into a Roth IRA or a traditional IRA, which for those listening, a traditional or a Roth IRA, these are open to anyone that earns any type of income at all.
[01:12] They're not freelance-specific, and you open them up almost like you would open up a bank account. So you can just Google, like, Roth IRA providers or traditional IRA providers, and it takes like 5 or 10 minutes to set one up. I think Fidelity has an easy way of doing it, right? They have a few that— I used to have one in Fidelity.
[01:29] You just set it up online. Yes, yeah, yeah. I used Vanguard for mine for many, many years and love Vanguard still to this day. And now I use Ally Invest, and I ultimately decided to use them because Ally Bank is who I also bank with for, like, my personal bank account. So just to have everything with one login and all of that stuff felt easier.
[01:49] So I eventually transferred. But the plus side of that is that it's super easy to get started. Like, you could open up this account today and start contributing. But the downside is, is the contribution limits, like the max amount you can put into the account, is relatively low. But depending on your situation, you might not be anywhere close to hitting that cap in a year, and it changes every year.
[02:11] So let me actually Google what it is real quick. So for 2026, the contribution limit is $7,500 if you're under age 50. And so based on your situation, you may say. Per year or per month? Per year. Per year. Boy. Yeah, it's relatively low. I know. So if you're just getting started out, though, maybe you think $7,500 might be the
[02:33] max I can do anyway, so this is fine. But if you feel like you want to start contributing over those limits, that's where the SEP comes in. Emily has a SEP, so she can speak to that. I actually went straight from a Roth IRA to opening up a solo 401(k) because I opened up this account when I was making, like, almost $200,000 as a freelancer,
[02:56] and I was like, I want to try to dump as much money into a retirement account as I can so I can, like, save money on taxes and lower my taxable income. So I went straight for the solo 401(k) because the contribution limit is, like, almost $30,000. It's like in the high 20s. And then also as the employer, at the end of the year, you can, like,
[03:16] give yourself a bonus, so you could potentially put even more than that in there. And so that's what I did for many years, and that's the account that I still— that I still have. Emily can speak to the SEP. And I just quickly jump in there, which I think is important for our listeners, is that that will help lower your taxes. Right. So I know there's always this
[03:35] push and pull as a business owner or freelancer, whatever, of like, oh, I don't want to spend money, I want to keep as much of the money as I can. But then it's like the more money you spend in your business, the less the taxes will be. And like, it's hard to part with money. And I very much feel that sometimes. But if you put it into some kind
[03:54] of retirement fund, you will be taxed less. So you're doing yourself a favor. You are saving for your future, and you're going to be taxed less in April, February, March, whenever that time of year, yearly time. Yeah, right. I actually found that out by mistake because my first few years especially, I was like, I want to keep every single dollar that I earn.
[04:19] And then I think my second full year of freelancing, I was already making close to, like, $90,000 something, which was like quite a jump from, like, the $40,000 something that I made the year before. And I ended up with a tax bill that was way higher than I thought it would be. And that's when I learned, oh, if I just save more, like, I don't— I have more money than I need
[04:41] anyway, I feel, to live on. And if I just reroute some of that extra, instead of it sitting in my savings account, if I reroute it into a retirement account, I will lower my taxable income by however much I put in there, and then I'll have a lower tax bill or hopefully no tax bill at all whenever taxes roll around. The big question, though, for people might be like, they can't take
[05:03] it out again, though, because they'll be penalized, right? So I think that is also something. And when I say penalized everyone, it means kind of like you will have to pay a fee, right? So I guess that's a big question mark for some people because it's like, oh, great, yes, I want to put it towards retirement, lower my taxes, etc. But now I can't get it back.
[05:20] Well, you can't get it back, but you have to pay to get that money back. And I think that that's, again, another one of those push and pull things of being a business owner, which is difficult. Emily, do you have anything you want to add in terms of. Yeah, yeah. So like what you were saying, I started off when I started freelancing, I had a Roth IRA that had been open for
[05:41] several years and some money sitting in a retirement account from my previous job. So I, for the first several years, was just contributing to a Roth IRA. And then similar to Cassidy, I got to a point where my income grew significantly from one year to the next, and I had a huge tax bill. And I was like, this is not fun. So the next year, I decided to
[06:08] actually make traditional IRA contributions, which similarly lower your tax bill. Now you will pay taxes on those gains when you withdraw them, but it really helped lower my tax bill the following year. And then the year after that, I decided I actually have more money that I'm saving that I can contribute beyond an IRA. And so similar to you, I decided to open up a SEP.
[06:37] And what I did was I actually waited until filing my taxes to kind of see how the numbers would shake out and had my accountant say, you know, after looking at my expenses and my income, she said, okay, you can contribute this much and lower your tax bill this much. And when I got that message from her, I was, like, torn because it was a lot of money to contribute, more than
[07:11] I ever had at one time to a retirement account. And part of me just really wanted the safety of, like, holding on to some of that. But ultimately, I was like, let's do this for future me. I can do what I've been saving all year. This is what this money has been set aside for. And so I made a big kind of lump sum contribution
[07:37] to the SEP IRA and dramatically lower that tax bill. So it was a win-win. It was a little uncomfortable, but I feel good about it. And ultimately, I think it was the right choice. And that's kind of how I'm approaching taxes moving forward is after my business expenses and paycheck are taken care of and I have a full cash cushion that I
[08:04] feel good about, I'm kind of just piling money into an account for retirement so that I can ultimately lower that tax bill. So let's jump to health insurance because that's a big thing. I know with my students and a lot of freelancers who don't have a partner who is employed, who can put them on their health insurance, what do you guys have any recommendations for those people?
[08:29] I'll let Cassidy speak to this. Yeah, I— so for many years in my freelance business, was actually married, so I was on a spousal plan through his employer, got divorced, and then I was like, oh, crap, I'm on my own. I've got to figure out this health insurance thing. Turns out not as scary as you might think. So that's my first piece of calming thing.
[08:54] I'm through the other side. Not so scary. I personally have health insurance through my healthcare marketplace, and every state has one. So you can go to healthcare.gov. It will reroute you to whatever your state website is. But I have, you know, health insurance through my state, essentially. And I have a high deductible healthcare plan, and I was originally afraid that it
[09:19] was going to be like $1,000 plus, but for last year it was $250. And it is just me. I don't have any dependents or anything like that. So the cost is much less than I thought it would be. It did go up a little bit this year. It's $300, but I am a $300 a month. Yeah. And I pay for that through my business, so I get
[09:43] to write it off as a business expense. And yeah, I got the policy online and it's working. And so we know other freelancers where, like, if you are concerned, you could potentially work with, like, an independent insurance agent to try to figure out what policy, like, we have. It's actually the same person I mentioned too was the English professor. Like, she was married with two kids and she was like, I need
[10:10] to provide health insurance for my family as a freelancer. And so she did end up getting health insurance through the marketplace as well, but she worked with an independent agent to figure out, like, what specific plan was going to be the best for her. And so that is always an option as well. Yeah, and I think we should definitely, as freelancers, if you don't have the option
[10:32] of getting on any kind of partner's health insurance, it's, you know, one of the things you have to factor in when you're looking at the numbers, like taxes, emergencies, retirement, and health insurance. Because if you have dependents, there was a, like, in this last summer, my husband got laid off and he did get another job two months later, but we were looking at, okay, I need to get the health insurance for
[10:57] everyone. And it was in Massachusetts. It was really pricey. It was like $2,200 a month. And it's like, okay, well, now I need to look at that as part of, like, and I was like, do I let go of some team members? Like, how do I manage that? And it's like just something that you need to figure out as a business owner.
[11:13] It's like, yes, you want to do this. What is your life situation? Health insurance? You need to have that in the United States. So let's see, how are you going to make it work? And it's a sad reality that it's going to take out a huge chunk of your income sometimes, depending, right? Like, because I had dependents and another adult, so it
[11:29] was four of us total. Right. And, like, okay, so correct me, I might be wrong on this, but they asked my annual income. So they must— do they base health insurance, you know, do they base it off of your income? The way that it worked for me is I also had to disclose what my income was, but it was to see if I qualified for any credits because I
[11:51] live in the state of Minnesota. And I think as a single filer, if you make under $60,000 a year, there is a chance that you can get some state subsidy to help lower the price of your health insurance premium. And so to my knowledge, that is the extent of why they're asking for your income. It's just to see if you qualify for any reductions.
[12:11] Okay. Okay. Thank you for clarifying that. I know that finances is tough for freelancers. It stresses them out. What are habits that people could put into their daily, weekly, monthly life right now to feel more in control of their money, especially with what you said, like the ebbs and flows of freelance income? I think one of the best things that I started doing for myself was having,
[12:38] like, a Friday kind of money check-in. And to be honest, this isn't something I do anymore. I feel like I'm in a place where things kind of run automatically. And I'll check in once in a while, but I feel like it's not as necessary. But when I was first starting out, I implemented just like a little 15-minute Friday check-in where I would just go into my business bank account, look at the
[13:07] numbers, make sure, you know, invoices were getting paid, update my earnings and expenses spreadsheet, and just, like, get past that resistance to looking at the numbers. Because when you're first starting out, and this was the case for me, my business was a very slow and steady build to making a decent income. And so when you're not making much, you don't want to look at the numbers.
[13:39] You, like, don't want to see the earnings. You don't want to see what's in your business bank account. But if you can just get in the habit of, like, as soon as I started doing it, everything became clearer. I could so much more easily see, like, okay, I need this many more clients or this many more projects in order to hit these goals.
[14:04] I know what my expenses are. Actually, they're not as high as I thought, you know? So just making a habit of looking at your finances when you're starting out, I would say once a week. And maybe as you get more comfortable, you can kind of back off from that. Now I pay myself twice a month. I do, like, a bi-monthly paycheck, and those have kind of become my check-ins.
[14:32] So a mid-month paycheck, I pay myself on the 15th and then the last day of the month. And that last day of the month is also when I'm sending invoices and updating spreadsheets and that kind of thing. So it has evolved, but I feel like the habit that can help a lot at the beginning is just setting a date, putting it in your calendar, look at your numbers.
[14:58] Yeah, I would add two things. The first one is more of a mindset shift, but your freelance business is going to look like so many different things. Like, it will be constantly changing. And that's not a reflection of you as a person. That's just the realities of freelancing. No two months, no two weeks ever look the same. But think as much as you can of your freelance business as a
[15:27] numbers game. It's like if you're not making as much money as you want to, you can say, okay, well, I just need X number of new clients that pay X amount per project to get to this income goal that I need to hit. And then also with pitches, like, the best advice I think that Emily and I ever got was to expect to get, like, maybe one, and I forget the exact
[15:50] number, but it was like to expect to get one response when you're pitching people for every, like, 20 or 30 pitches that you send, you know, which I feel like helps remove because so many times you send five pitches and you're like, no one's responded. Like, I suck as a human being. And you absorb all of that yourself. But if you can just think of your freelance business as a numbers game,
[16:11] I need to send X number of pitches to get a response. I need X number of clients that pay X amount to hit my income goal. Like, think of it almost like a game. And like, I just went through a very, very slow season in my freelance business. And because I had cash cushions built up, I was kind of riding that wave. And I was like, history has proven
[16:30] I've been freelancing long enough that, like, the work eventually comes back. And then after, like, five consecutive months of just almost no work, I was like, okay, Cassidy, we need to start pitching. Like, you can't sit in this, like, the work will eventually come back kind of mode forever. And so I sent out almost 30 warm pitches. So these were past clients that I had worked with, other freelancers
[16:53] in my niche that I knew, companies that I had worked with, like, tangentially in the past. And I, like, now June is going to be shaping up to be like an amazing month for me. And I, for example, yesterday had a call and found out that I had landed like a 10K project just for June. So, like, and this is after consecutive months of like $2,500 this month, $3,000 this
[17:19] month. So yesterday I was like, we're back, baby. It's happening. But that happened because I was like, okay, I'm going to treat this like a numbers game. And so just, I feel like whenever you freelance, you are forced to confront so many parts of, like, who you are as a person. I feel like I've grown so much as an individual just by having a freelance
[17:38] business because it forces you to think outside of the box so much in terms of, like, how can I reach these goals? How can I provide for myself? How can I make sure things are happening like I want them to? So my first habit is just to, like, remove the personal attachment you may feel to your freelance business as much as you can. And just to stay kind of
[17:59] in that almost outward view of, like, if I'm not hitting my goals, how can I get there? My second thing, and it's truly the habit that I think has changed my freelance business the most, and that is becoming friends with other freelancers and talking openly about your finances, specifically how much you're charging. I knew in my gut when I started freelancing that I was probably undercharging, but
[18:24] it wasn't until I opened up to other freelancers and started having these conversations that, one, I realized how much I was undercharging, and two, I realized how much more I could be charging. Like, I think even if you would have been like, you know, you're undercharging, Cassidy, from 2020, how much do you think you should be charging? That number was still way lower than what I could have actually been charging, you
[18:45] know? And so I think talking to other freelancers and building those relationships, one will give you a sense of community, which is so, so important when you're freelancing, but also it will open up your eyes to, like, the potential of how much you could potentially be earning. And then you have people to, like, bounce ideas off of and stuff. And so it will truly do so much for both your mindset and
[19:09] your money, just if you're willing to have these conversations with others. I love that. For the freelancer listening right now, if they wanted to completely change their financial situation over the next year, which is probably a lot of people, and most people would want to increase their income, what is one thing you could distill everything down to and tell them to focus on it?
[19:30] I think, and this might sound really simple or obvious or, like, not a fun answer, but things changed for me when I actually created a business budget. And I know that sounds really boring, but I listed out all of my business expenses. I listed out all of my goals. I listed out all of the recurring things that I wanted to be saving towards. So, like, you know, someday I'm going
[20:04] to need a new computer. Someday I want to go to a conference. I want to, you know, travel and do business retreats. And I want to donate some of my income to causes I care about. And I had all of those things laid out in an actual budget. And my cash cushion was in there. My retirement was in there.
[20:24] Honestly, just getting organized, seeing those balances add up and just kind of what Cassidy was saying, like, separating the outcomes from, like, my personal worth. Which is so hard. I still struggle with that sometimes, FYI. So hard. I've been doing this so long and I still sometimes are like, it's so personal because when you are your business in some ways, when you're not like
[20:48] this big agency, like, I was an agency at one point, but like, now I'm back to me with a team, but different way of operating. And it's just like, I'm the one that's client-facing. I am the face of everything. And it's hard sometimes to remove yourself and not get so hung up on that. It is so hard. So I think, like, getting all of that out of your
[21:09] head and on to, for me, a budget really works. And I'm a big fan of SAP. You need a budget. Cassidy is too. We've been using it for years. But honestly, just, like, getting it all out of my head and being able to see it being organized, seeing those balances add up, seeing that I'm okay, I have this cash cushion right here laid
[21:32] out for me. I have my paycheck. It's the same every month. That's when things changed for me. And I was just, I don't know. I feel like the clarity goes so far in charting a path forward as a freelancer, like Cassidy was saying, if you know, okay, this month is shaping up to be my third low-earning month in a year and my cash cushion is dipping, I
[21:59] can see that, like, it's time to, you know, start pitching. And so honestly, for me, I think that is the biggest suggestion. It sounds boring, but the clarity you get is really valuable. And would you recommend using AI for that? Like, I do have one student who uses AI to help them budget and help them figure out their expenses.
[22:21] They use ChatGPT, but they love it. I think for me, it's always like, well, it's going to tell you what you want to hear. So I'm always kind of hesitant over that. But I think if it could be just, if you give a prompt that could be like very much like, no, just stick to tactics. Do not tell me what I want.
[22:37] Like, just tell me what you're seeing right now. It might be very helpful. Yeah, I've never done that personally. I think the key is, like, finding a system you are, like, comfortable using. And for me, that is a budgeting app. I know, like, we've interviewed several people on our podcast who literally just use a pen and paper and that, like, works for them. So yeah, there's a million ways
[23:03] to do it. It's just whatever works for you. I would add something in that similar vein. It sounds like your Money Mapper is, like, a great place to start with figuring out how much you need to be earning to support your lifestyle and still save money for taxes and stuff like that. But last year, even though I had been freelancing for years and years and years, at this point, I was butted
[23:25] up against two big life changes. One, I was experiencing my first slow year that I had experienced. Traditionally, my income had, like, increased year over year over year since 2019. And last year was the first year where, well, just for some context, in 2024, I had, like, a $200,000 year. And then last year, my income was shaping up to be $100,000. So literally half. It still felt like more than enough money
[23:51] for me. But the second big life change was that I was starting the year divorcing on my own for the first time. And so I moved to a new city. I had all of my own bills. Like, I didn't have another income to help share the load. And so in a lot of ways, I felt like I was starting over as a freelancer from scratch. And so, like, the best thing that
[24:11] I did for myself was that, one, I tried to create, like, my new life in the context of what if this slow year continues. So, like, I didn't get an apartment or, like, get a car or anything like that based on the $200,000 I had made the year before. I was like, we are going to build our life around what our income is
[24:33] actually reflecting right now. And even if you're in a high season, like, the best piece of advice we've ever gotten is to try to live your life as if you were having a slow month so that whenever you do have higher months, you're able to put that money toward a cash cushion, toward retirement, toward investing in courses that are going to help you build your skills, right?
[24:53] So, like, you can use that money for things that are going to better your life, bring more joy to your life, all of those things. And so that was kind of the biggest thing for me. But I, in a spreadsheet, built out, like, if this is my rent, if this is my car payment, if this is my groceries, if I need to save 30%
[25:09] for taxes, if I want to contribute this much to retirement, if I know my health insurance premiums are going to be $300 a month, like, this is how much I need to be earning. Like, this is what my average income needs to be as a freelancer for me to sustain this lifestyle. And then based on whatever that number is, I could look and be like, okay, like, I need to do some
[25:28] client outreach. I need to raise my rates. I need to get more creative about how to make sure that I'm hitting this goal. And I think if you're a new freelancer, if you've been freelancing for a while and you want to increase your income, I think at any point in time, that is such a helpful exercise because to Emily's point, it gives you the information that you need to be able to
[25:48] enact real change and, like, ultimately end up where you want to be in your freelance business. And so that's, like, a very good thing to be working toward over the course of a year if you're not currently where you want to be. I love that. This has been so helpful, like, both of you, Emily and Cassidy, like, so helpful, I think, for people to really think about their finances as a
[26:07] freelancer and if they're thinking about freelancing full-time, what they need to be aware of, right? So I suggest everyone please go listen to the Finance Girlies podcast that Cassidy and Emily host. They're co-hosts. And you're going to just get so much more knowledgeable about money and finances and investing. Everything that you need to know will be in that podcast. So please go check them out. As always, I'm Kiri Mohan.
[26:31] I am the founder of Flourishing Freelancer. I'd love you to join my group and jump on a call with me. The link is in the show notes. Free call. And as always, keep flourishing. Are you struggling to get the income you desire as a freelancer? Download my Money Mapper for a clear view of the earnings you need to achieve your dream salary. It calculates monthly income while factoring in taxes,
[26:54] expenses. And the best part is that it grows with your business to include contractors and a SEP IRA. Head to the link in my show notes to calculate what you should be earning to start increasing your income.
