4 Essential Tools for New Freelancers

Because time is money in the small business of You.

Critics of the freelance lifestyle are quick to remind would-be entrepreneurs of the perks a 9 to 5 job provides: no big tax bill, automatic 401(k) deposits, and freedom from all of the frustrating admin work that comes with being your own small business.

There may be truth to each of these criticisms, but going freelance doesn’t need to be an administrative headache. If you’re thinking about becoming a freelancer (or if you’ve already embraced the self-employment path!), here are four tools I wish I’d used when I was first starting out:

Many new freelancers don’t know that opening a 401(k) is possible without a full-time job. Not only is it something you CAN do, investing is something you MUST do to ensure your freelance career is sustainable for years to come.

Creative and entrepreneurial, freelancers often possess a broad range of skills — but managing an investment portfolio is typically not one of them.

Creative and entrepreneurial, freelancers often possess a broad range of skills — but managing an investment portfolio is typically not one of them. Fortunately, in the past 5 years, a host of websites have made saving for retirement easier and more affordable than before.

I started using a wealth management website after I was fired from my full-time job in 2018. My former employer’s financial management company offered to continue managing my existing 401(k) — for a substantial monthly fee. Talk about salt in the wound! Based on advice from another terminated employee, I rolled over my existing 401(k) to a website called Betterment.

Betterment and many similar sites use a “robo-advisor”, or an automated rebalancing algorithm, to manage your money. Betterment and other robo-advisor sites like ElleVest and WealthSimple start by asking questions about your retirement timeline and financial goals before recommending a long term plan for your money including how much you need to contribute each month to hit your goals.

As your wealth grows, the automated advisor adjusts the contents of your stock portfolio, including changing your investments to less risky ones as you approach the date of your retirement.

Many of these websites also have a feature that automates withdrawals for a set amount or percentage of every deposit to your checking account. It feels similar to when my retirement contributions were withdrawn from my monthly 9 to 5 paycheck.

Because it’s all automated, I don’t have to stress about the ‘right’ amount to allocate — my robot buddy takes care of my future financial health.

When I’m making more money, I automatically contribute greater amounts to my retirement. When things aren’t going so hot, I don’t. And because it’s all automated, I don’t have to stress about the “right” amount to allocate — my robot buddy takes care of my future financial health.

These websites often charge less than a percentage point of your portfolio, which is substantially cheaper than if you paid for the services of a personal (non-robot) advisor.

For the uber-wealthy, a human portfolio manager can sometimes make the difference between “doing well” and “hella wealth”. But for the average freelancer with a little-to-modest amount to invest, a robo-advisor is the perfect entry into wealth management.

Fear of self-employment taxes and the accompanying deluge of paperwork kept me from pursuing freelance life sooner. Although independent contractors indeed face a higher tax rate than full-time employees, doing your taxes doesn’t have to be an admin nightmare.

With writing as my primary business, I have minimal business expenses. Unless you regularly spend more than $1,000 maintaining your freelance business each month, taking the standardized annual deduction of $12,200 will be your best bet. With itemizing off my plate, I find the trickiest part of freelance taxes is the quarterly payments.

The quarterly tax process is not as straightforward as simply inputting a W2 and sending off your payment, but it isn’t nearly as complicated as you may have been lead to believe. Good tax software makes a huge difference. My favorite is FreeTaxUSA.

FreeTaxUSA serves as a guided tutorial that prompts you to input various numbers corresponding with the amounts you’ve made, spent or paid in taxes over the past quarter or year. It takes a bit of time to go through the whole process, but the software protects you from overwhelm by simplifying the tax jargon and only presenting one query at a time.

The software protects you from overwhelm by simplifying the tax jargon and only presenting one query at a time.

An added perk is the digital archive of your past years’ tax reports, so you can easily reference them when estimating your quarterly payments in the future. This built-in paper trail may not be important as a baby freelancer, but it’s a good practice to have in place as your business grows.

As the name implies, FreeTaxUSA is a free software to use, but filing will cost you a small fee (around $12). If you want to be super frugal, you can use the software for free to process all your paperwork, then print out your completed tax forms and mail them off yourself.

Whether you file on your own or through the website, you’ll save money on accountant fees and save time you would have spent doing your taxes longhand. Plus, by being your own tax preparer, you’ll gain an intimate understanding of the cash flow, expenses and taxes of your business.

By being your own tax preparer, you’ll gain an intimate understanding of the cash flow, expenses and taxes of your business.

When you’re starting your own small business, budgeting for savings can be nearly impossible as your expenses will likely outpace your earnings at first.

That’s why I love using microsavings apps like Digit or Albert. These apps strategically draw small amounts of money from your bank account into an FDIC-backed savings account only accessible through the app.

The savings account has the same level of security as one through your bank, but without the ability to easily funnel it all back into checking. Microsaving apps are the digital equivalent of hiding money under your mattress and forgetting about it.

Microsaving apps are the digital equivalent of hiding money under your mattress and forgetting about it.

With a sneaky app squirreling away my extra change for a few months, I ended up with a $600 savings account! Because I hardly noticed or remembered investing in the account, I was never tempted to drain it for non-emergencies.

When your freelance business is new, having money left over for savings can feel like an unattainable luxury. Using microsaving apps to slowly collect your digital pennies can help provide a cushion of emergency funds for that month when your invoices haven’t cleared, but the rent is still due.

If you’re freelancing, you’re not only a professional writer or programmer, baker, designer, stylist, photographer, dog groomer — whatever your craft might be! — you’re the entire administrative staff of You, LLC.

Time is money, so don’t spend your time on any administrative tasks you can automate, templatize or significantly speed up.

Time is money, so don’t spend your time on any administrative tasks you can automate, templatize or significantly speed up.

One of my favorite admin shortcuts is invoicing software. There are several free and cheap versions on the internet, but I use InvoiceHome. Each time I need to create a new invoice, I duplicate the last one I used for the same client. Their contact info is already populated, and the website automatically updates the date and tracking number.

Invoicing alone is not a particularly challenging or time-consuming task, but a good invoicing website provides more than just templates. The best ones keep a running catalog of all of your invoices with easy shortcuts to mark whether or not each has been paid.

You can see with a single glance which contacts may require a second (or third!) email bump to ensure you get the money you’ve earned.

You can see with a single glance which contacts may require a second (or third!) email bump to ensure you get the money you’ve earned. With this feature, you can also easily tabulate how much money you’ve made for the quarter or year.

By keeping my invoicing efficient, I minimize the amount of time I spend working as the “operations manager” for my business, and more time doing what I love — writing.

Short of hiring someone to do it for you, all freelancers will have to do some amount of administrative, non-billable work. By using cheap and free tools like these, you can streamline your operations and make the most of your valuable working hours.

By automating my investments, savings, invoicing and tax payments, I can give myself some of the structure a 9 to 5 provides, while still holding on to the hard-won freedom of self-employment.

Let me know in the comments: what tools have helped you as you launch your freelance business?