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How should Freelancers Manage Their Money?

I would not consider that I am more of a freelancer or part of the gig economy.

For a long while, I held a job that many said was rather stable. The difference is that I have a gig at night that pays as well.

Generally, I do not face any cash flow problems throughout that time because I don’t do crazy things like spending more than what I earned.

The gig part pays, but it does not cover all the expenses, so its role to me is good to have and it keeps me motivated. But I have been doing this since Uber, Grab, Deliveroo, Food Panda is a thing.

But before all this, there were a lot of professionals that manage their time, their own sales, their own earnings. Photographers, videographers, swimming coaches come to mind.

I always wonder what is a fundamental sound framework to think about managing money if your income is not very stable. It bothers me because I seemed to have an idea that as freelancing and doing gigs get more popular, there will be more people struggling to save and manage their money well.

So here is what this post is going to explore.

Why Income can be Volatile

The main characteristics that was often mentioned was the volatility in income. A lot depends on the frequency of projects. The payment schedule is also another thing.

Some of the jobs get bunch up… then there is a period with very little job. It can be rather seasonal.

In some of my gigs in the past, I nearly forgot about the payment because the company took a long time to pay.

Some of us have to chase to see what is holding up.

In some gigs, it is not whether the jobs are volatile, it is the income depended on whether you work, and whether you worked hard.

When your income is volatile, I felt that there is this uncertainty at the back of your mind whether you would make enough to be OK. This could overtime be rather stressful.

You enjoy the good part of being in control of who you wish to work with, the hours to work, and not having to have to follow some corporate structure that does not make much sense for your case. But the stress is translated into something else.

The solution to everything seemed to be:

  1. Get better. When you are better, more recognized, you have the potential to be paid better
  2. Get enough buffer. Instead of living in fear whether what you earn is enough, have enough jobs, projects on a more recurring basis so that this uncertainty gets reduced

I do find that whether it is working a salaried job or working on your own business, on a high level, some rules of thumb are the same.

Managing money when income is Volatile may not be so different from managing Retirement Income Needs

The future of retirement may not be a day where you stopped working entirely.

I do foresee many not having the adequate wealth to fully retire.

Thus, it is a mixture of

  1. Working and getting a work income
  2. Living off CPF Life
  3. Living off an endowment policy with income
  4. Living off dividend income from unit trust
  5. Living off selling units from accumulating unit trusts
  6. Living off rental income

The only consistent income may be your CPF Life. You would need to create a sustainable spending plan to deal with how 1 to 4 comes together.

Freelancing and working on gigs look very similar in that you have multiple partners you worked with, multiple projects, work for multiple gig companies. Each of these have different durations, frequencies pays a different amount.

Thus, the freelancer may need to manage their money using a framework similar to how a retiree manages their income.

The main difference though… is that the freelancer has to put greater emphasis on saving than the retiree.

The freelancer has a long time to go. There are many future liability/goals that they would have to fund and would need money to do so.

So here is how I would think about the money side of things.

How you should Frame the Money Game

I will view your money management in 2 phases. The difference between these 2 phases is how certain you feel about the business:

  1. Phase 1: Business Building Stage. You are not so sure if things will work out and are putting in efforts to bring the business to a stable state
  2. Phase 2: Stabilised Business Stage. After being in phase 1 for some time, you have a very good sensing that you have reached a stable state where you have
    1. brought in enough projects
    2. have adequate recurring projects
    3. enough large clients
    4. by not working yourself dead, you can have income that covers the essential expenses and more on a consistent basis

The way you would manage your money in these 2 phases should be rather different. Let us go through them.

Phase 1: Business Building Stage

In this stage, you are likely filled with a mixture of

  1. uncertainty whether things will work out
  2. things you have to figure out that you do not know about having a business on your own
  3. transitioning from a paid employee, a student to a sole proprietor

Because you do not know whether things will work out, when it comes to money, this is the stage where you go into “siege mode” or “living like a student mode”.

This means that you have to first be aware of your finances and be in total control over it. This is because you might not have much income coming in, or the income can be rather low and volatile. The income needs some time to ramp up and transition to Phase 2.

Here are some things to think about.

Look at Your Expenses on 2 Levels: Essential and Less Essentials

Living the life of a student can ensure your money last for a longer time and give your freelancing or gig business a greater chance of surviving.

In order to do that, you need to know where the money goes out to.

I would tell a retiree to look at their expenses as 2 levels:

  1. Essentials: What you need to survive and stay sane
  2. Less Essentials: Expenses that are optional. They make life richer but without them, you should not suffer much

You will have different definitions for both and it is up to you. But you will have to exercise some critical thinking.

As a rule of thumb, the following are essential:

  1. 3 Meals x 30 days that keeps you satiated (Meals that you go out with friends, socializing is less essential, or business expenses)
  2. Transport
  3. Rent and mortgage
  4. Meals for children, school fees, allowances
  5. Home utilities such as Mobile phone subscription, electricity, water, property tax, conservancy, sinking fund for home breakdowns
  6. Hospital and surgical insurance (the rest are less essential)
  7. Business expenses
  8. Some entertainment expenses

Work out the number and know the number. If you have the chance, while you are an employee, try to simulate and see whether your essential expenses are reasonable.

Build up 3 Months of Essential Expenses before You Start

Some folks will tell you that you must have 3 months of emergency funds before you start.

I would say… let’s not term it as emergency fund.

The way to look at it is that all your money, every dollar is going to be queued up in a straight line.

Your job is to create the furthest gulf between the dollar you spend today versus the next dollar that you come in.

It would be better if you can save up 3 months of essential expenses before you embarked on this.

If you have a day job, save up the equivalent of 3 months of your essential expenses. If you are conservative, go up to 6 months or 12 months. This will give you enough runway.

Here is how it looks like:

You will have a 3-month runway. Whatever you earn in the projects get queued up behind pay 3.

The size of each blue box is the size of your essential expenses.

In this stage, there is no messing around. You do not know whether it will work out, so you will only spend the essentials. If you make more, the money gets queued up for future essential expenses spending.

Live on Last Month’s Income

This is a budgeting concept that comes from You Need a Budget (YNAB), a very popular envelope budgeting system.

On this note, if you wish to budget well, you can try to get one of the envelope budgeting systems such as YNAB, EveryDollar, Quicken so as to control the money well.

Living on last month’s income means this month you are spending what you earned last year. When your income is not consistent, it is better not to spend what just came in.

If the customer does not pay on time, then you have no money for food.

Whether in Phase 1 or 2, the idea is to build a dollar queue such that the age of the money you spend today is very old (this means that your money queue is very long)

Phase 2: Stabilized Business Stage

At some point, you will conservatively feel that you have figured things out to a certain extent.

The money management would change.

The difference between a freelancer versus a retiree is that there is much future goal/liability to think about:

  1. Financial independence
  2. Children’s education
  3. Capital expenditure for business
  4. Home

For some, their income have grown so much and so consistent that it seems to be like when they were employed. In this case, the way you manage money may not be any different from how a sensible employee would manager her money.

However, if the income is never consistent, you might need a different way of managing it.

I would suggest breaking up your income into 4 chunks:

  1. Essential Expenses
  2. Less Essential Expenses
  3. Constant Savings. These are savings that you have conservatively estimate that you could put away
  4. Good-to-have Savings. These are savings that supplements #3 when you do better

We break up #3 and #4 the same way as your expenses because to a certain extent, you need to save up for your future goal/liabilities.

But you don’t want to over save and not live for the moment. There has to be a certain balance.

However, if your business does really well, a portion of the savings can go into fulfilling those future goals/liabilities.

With that, you can build in some rules.

Firstly, ensure before you start this phase, you could have 8 to 12 months of essential expenses queued up. That will give you a good runway.

Your order of priority when your income comes in:

  1. Essential Expenses
  2. Constant Savings (pay yourself first!)
  3. Good-to-have savings and Less essential expenses
How a stabilized business income allocation will look

A stabilized business should deliver in excess of a total of essential expenses and constant savings. But by your estimation, it should be well in excess of that.

You should have adequate for essential expenses and paying yourself first.

For each month, anything in excess, split in 2. One part you save, one part you spend.

Every year, increase the essential expenses and constant savings by a particular percentage. This may be the inflation rate.

In this way, you can try to build some stability in spending and saving.

Be Sensible with Your Less Essential Expenses

The idea is not to blow your less essential expenses for that month.

There are less essential expenses that are lumpy such as vacations, annual subscriptions, annual premiums.

You have to know the amount, and if you have excess that month, fill it up. If you wish to go to Europe and need $5000, the moment you have $1200 in excess for the month, spend part of it on trips with the family locally but put $700 towards this $5,000 target.

What should you put your savings into?

The savings is meant for longer-term liabilities such as children’s education and financial independence.

In order for your money to grow, you need to put into risky assets. This would depend on your ability to take risks as well.

I would not advise putting in a highly risky portfolio but you cannot live with it. A good investment plan is one that you could stick to.

If you look at your life portfolio as a business, almost 80-90% of your net wealth is concentrated in your business. It is something you know very well about.

Your business may be volatile or less volatile.

The financial assets that you should use to build wealth upon should be:

  1. Less correlated with your business. If your business is in the media industry, don’t have all your money in other media investments
  2. Opposite to the volatility of your business. If your business income is uncertain, then the assets you put into should be less risky

It is no wonder that for many business owners individual bonds, property, insurance endowments have become the favorite.

They have a few things in common:

  1. low volatility in value
  2. provides an income
  3. not very liquid

I do wonder if it is a good idea for property agents to have their net wealth in properties as well.

In any case, I think a low cost, diversified portfolio of stock ETF/Unit Trust and bond ETF/Unit Trust could also do the trick.

The allocation will depend on your ability to take risk and your need to take risk (most often you will need to)

A diversified portfolio offers a few advantages:

  1. Liquid
  2. Can be invested in small amounts
  3. If you wish to liquidate, you can choose to liquidate partially
  4. Diversified away from your freelance business
  5. Ability to cash flow if you require

It is a misnomer that you could not cash flow a portfolio of funds that does not provide an income by default. The fund puts the decision & responsibility to cash flow in your hands.

Otherwise, why would the majority of the United States Financial Independence community be able to get cash flow if they have primarily used low-cost funds?

Your Portfolio As a Buffer

One advantage of that liquidity and cash flowability is that in the event you need to tap on your portfolio in the short term, you could do it:

  1. Your mortgage would have sapped cash flow instead of giving you cash flow
  2. Insurance endowment that do not distribute cash flow are illiquid
  3. Your income from your bonds is fixed

In a diversified portfolio of funds, you could spend a conservative amount and the portfolio could still grow. For example, you could conservatively spend 3% to 3.5% of the value of the portfolio if it has grown to a sizable amount.

If not, when you really need it, you could spend 10% of it. If you keep up at this rate, your money will not last long, but the idea is, weather the short term storm and in the future replenish it.

Get Some Help if You Need To

Help can be in the form of some software as a service to help you manage your money.

I have mentioned YNAB and possibly a lot of mobile money app will help you keep track of what you spend on.


I am not sure if most readers agree. There should be a fair bit of you who are in this group I am talking about. You could correct me if I am wrong.

In actual fact, I would probably not be the right person to write about this.

But I don’t see some property agent, or insurance agent, or Grab food driver write a piece on this side of things.

There are probably some areas I missed out. I would add them in when I think of it.

Meantime do let me know if there are areas I failed to consider.

What May Be Helpful:

  • Bully The Bear – Freelance Tutoring as a Business Part One, Two, Three

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Wednesday 6th of November 2019

Hi Kyith,

I'm owing a small firm. Would you able to recommend where and I can use my firm spare cash to purchase bond, share or fund ? I only saw most in market now are service for personal/private


Wednesday 6th of November 2019

Hi Wil, I would like to clarify something. Are you saying that you own a small firm and have spare cash to purchase something? I think you would have to think of your overall plan. Your money should serve a certain purpose. for most, it is to ensure that firstly they secure some security. then it is to save up for children's education and retirement. Whether it is bond, share or fund is more of the implementation. Generally if you are new to this, i do advise to start with funds.


Monday 21st of October 2019

Pls advice and give more information and How to go around and apply the protect our saving and investments.

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