Working for yourself gives you real freedom. But it has a money system that most people are not ready for.

You do not get a steady paycheck, you have no benefits from a boss, and some months are very different from others. It is important to learn how to handle this “up and down” money, and it is very important to learn it early.

Plan Your Money Around Your Worst Month

The biggest mistake people who work for themselves make is planning their money using an “average” month. One very good month can make you forget about three slow months.

Instead, look at the month where you made the least money in the last year. Use that small number to plan for the things you must pay. This is things like rent, light bills, food, insurance, and debt. These must be paid even in a bad month. Everything else is just extra.

Make a “Buffer” Bank Account

Think of this like a business account that is separate from your personal money. When you get paid, especially for big jobs, put the money here first. Then, pay yourself a “salary” of the same amount every month.

This helps stop the ‘feast or famine” problem where you have too much money one month and nothing the next. A good goal is to keep two or three months of bill money in this account all the time.

Save for Taxes Every Time You Get Paid

When you work for yourself, you must pay your own taxes. This includes the “self-employment tax” (15.3%) plus other taxes for the government. The IRS wants you to pay every few months, including in April, June, September, and January.

A good rule is to take 25% to 30% of every payment and put it in a different tax account right away. Do not wait until April. If the money stays in your main account for many months, it is very hard to give it away later.

Keep Your Money in Different Places

If you use the same bank account for your life and your work, it makes everything confusing and hard for taxes. You should have at least these separate accounts:

• A business account: Put all the money you earn here and pay for work things.
• A personal account: This is where you send your monthly “salary” to pay for your life.
• A tax account: Put money here for your every-three-month tax payments.
• A buffer account: Keep extra money here to help when you have a slow month.

Doing this makes it much easier to see how much you spend and to do your taxes.

Save More for Emergencies

Normally, people save 3 to 6 months of money for emergencies. For freelancers, this is not enough. Jobs can end suddenly, or the whole industry can get slow for a long time.

Saving 6 to 9 months of money is a better goal. It sounds like a lot, but it is the difference between having a quiet few months and having a big money crisis.

Make Your Own Benefits

When you have no boss, you have no health insurance help, no 401(k) match, and no paid vacation days. You can find health insurance on the healthcare.gov website. For retirement, you can use a SEP-IRA.

Having “up and down” money does not mean you have to be unstable. Sometimes, people who work for themselves can even become richer than people with normal jobs. This system will not build itself. But once you set it up, it really works.