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5.0 Money

This is the biggest chapter in this course, and I’ve broken the content into a few videos to make it easier to go through. We are going to talk about four main pieces in this chapter - your rate, receiving money, handling money, ad money habits.

Disclaimer: none of the content in this section is legal advice. I always recommend reaching out to an accountant in your area that has experience in taxes for sole proprietors or situations similar to yours.

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6.0

The Work

10:00

Video Transcript:

Part One: Rates and Paying yourself

Rates

Aside from “how do I find clients?”, the next most popular question I hear is “what should I charge?”. There are hundreds of answers to both, so I’m going to try to make my advice as simple as possible here.

There are three main ways that you can charge for work - hourly pricing, project pricing, and retainers. We’ll cover each and when you should use them here. But before that, I’d like to touch on the concept of your functional hourly rate. Your functional hourly rate is roughly what you need to make per hour of work in order to sustain all of your bills and obligations. This is a valuable number to know both for hourly work, but also as a baseline for project pricing and retainers. Your client will likely never know what that number is, but its immensely helpful to know in your own mind.

To calculate your functional hourly rate, you should start by making a spreadsheet of all of your expenses. List things like your rent, utilities, food, other spending, basically every main category of what a typical month in your life costs. For this example, let’s say your expenses are $4000/month. Over a year, you need to make $48,000 just to cover your expenses. Let’s say you want to take 4 weeks in vacation per year, so we’ll divide $48,000 by 48 working weeks, to give us $1000 week. Now, the next part is important, because you may think that the next step is to divide it by the number of hours per week that you work, but there’s another important factor here - billable vs. non billable time.

Billable time is time that you can attribute to a specific client or project, for example, developing a new website. You are being compensated for work while you work on it. Non-billable time is time that you spend working on things to run your business that are essential, but can’t be directly attributed back to a specific client or project. Examples of things that take up non-billable time are new business development, invoicing, bookkeeping, business planning, etc. Your functional hourly rate needs to cover both billable and non-billable time, so that what you charge a client for work also covers the time that you spend doing all of the other things to run your business. If you plan to work 30 hours a week, roughly 1/3 of that time will likely be non-billable work. We’ll talk about time tracking in the management chapter, which will help you more accurately determine your real-world billable/non-billable split, but for now we’ll assume that about 1/3 of your time is non-billable. We’ll take the $1000/week that you need to earn, and divide it by 20 billable hours, and add 30 percent on top of that for taxes, to give you a functional hourly rate of $75 per hour

  • $4000/month x 12 months = $48000
  • $48000/48 weeks = $1000/week
  • $1000/20 hrs of BILLABLE time = $50/hr
  • Adding 30%, or whatever tax rate you’re using, gives us $75/hr

Now, $75 per hour is the minimum that you need to make, but it’s not the ideal number you need to make. I would recommend doing this calculation a few times based on your minimum, and again with you ideal including things like a vacation budget, retirement savings, and knowing that sometimes work is slow and you need to have a buffer. You can use all of these calculations together to figure out the range of what your minimum and ideal hourly rates are, and apply them to how you charge. I would always err on the side of the higher ideal rate here, because as we’ll talk about shortly, freelance work can be lumpy, and there may be times that are slower that you need to sustain yourself for.

How to charge

Now that we have our functional hourly rate, let’s talk about different ways to charge for work. Like I mentioned, there are three main ways to charge for work. Hourly rates, project rates, and retainers.

There isn’t one ‘right’ way to charge, and each method can be applied in different scenarios successfully.

Hourly rates

  • What it is: An hourly rate is just what it sounds like. You tell a client that you will charge them $75/hour, you keep track of how many hours you spend on work, and you invoice them for that amount of time.
  • When to use it: I like to use an hourly rate follow project work, where I’m doing updates to websites and I’m not sure how long they will take, or they are small enough that it doesn’t warrant a full scope of work for a full project style price. Hourly rates are great in scenarios like this, especially for work that could take 10 hours, or could take 20, and you can give the client a range and keep them updated on progress.
  • How to calculate it: Use your functional hourly rate, or a number slightly above if you want to make more

Project Rates

  • What it is: a project rate is a price for an entire project, one flat fee that covers a large scope of work. For example, a single price for a full website design and development project.
  • When to use it: I use project rates as my primary method of charging clients. My work is project based, and project rates are a nice and tidy way to package everything up into one price. Project rates are great for work where you have a solid process, and roughly know how long something is going to take to complete.
  • How to calculate it: I know that most web design and development projects take me between 60-80 hours to complete. When I calculate a project rate, I multiply the number of hours I expect to spend on a project by my functional hourly rate, and then usually add 20% on top of that. The 20% accounts for time that I think about the work but am not actually working on it directly, and unexpected things that come up during the project. I want the project rate to have enough wiggle room that if a client asks for something extra outside of the original scope, I have some leeway to say yes and overdeliver without asking for more money. Clients like this, and saying yes more often than you say no will help boost your reputation as someone who is collaborative and easy to work with. If you charge an extra $1000 dollars at the outset of a project, it is a much different feeling than asking for an additional $1000 for something later on.

Retainers

  • What it is: A retainer is a set fee that covers a set amount of time. For example, charging a client on a weekly or monthly basis. You are paid based on the time period, and not necessarily on a certain set of deliverables.
  • When to use it: I don’t use retainers in my own work because it doesn’t really suit my work style. However, I do think that they can be useful. Particularly for work that is open ended, like product design, charging on a weekly or monthly basis can be a great approach. You have a rough idea of the scope of work, but if the process is still a bit unknown or there are a lot of factors, charging based on the amount of time that you work on a project, vs the specific outcome, can be good. There is a big trend in the design industry right now for ‘subscription style’ agencies, where a client pays a certain amount per month and in return they get ‘unlimited’ designs or revisions. It’s definitely is appealing to have clients pay you on a monthly basis, but I don’t like this for a few reasons. I think that this style of work can frame your services in a way that you become

Different rates for different clients

Is it okay to charge different rates for different clients? I think so. Some people believe that your rate should be your rate no matter who it’s for, and if you want to go with that approach, I won’t fault you. I however, do think that there is some nuance in what you charge different types of clients. A venture-backed startup that has a healthy budget and money to spend, is much different than a small business. I charge these types of clients differently, and I think that’s okay. My American tech clients are charged at the high end of my rate spectrum, and local businesses at the low end. I do this because sometimes I want to work with a local business, but their budget doesn’t match that of a well-funded tech company. You are in control of your work as a freelancer, and you can adjust your rates as you please based on the scenario.

Your rate right now isn’t your rate forever

With all of these different methods of charging, I would remind you that the rate you charge right now doesn’t have to be your rate forever. In my first year, a lot of the advice I heard was to ‘double my rate with every project’ or to pursue value-based pricing where you price your work based on the return that the client is going to get from it. A lot of this advice can make you feel bad for leaving money on the table. But at the same time, it is so  scary to send quotes out for more money than you’ve ever made before! I feel that.

What I would encourage you to do is increase your rate with every project you do. You don’t need to double it, but let’s say, charge 30% more each time you do a project of a similar scope. If you did a website for $5000, next time charge $6500. Raising your rates slowly over time will help to increase your confidence, as opposed to doubling your rate right away. When you know that you can deliver on a site for $5000, it’s not a stretch to have confidence that you can do the same for one that’s worth $6500. It’s a different feeling, and a lot more pressure to go from charging $5000 on a project to $10,000. You’ll get to $10,000 eventually, but you’ll feel more calm and confident about it if you do it in increments.

As always, you’re in control here. I took the approach of small increment increases for most of my first year, but I had a few instances where I took a chance and made bigger jumps. A story here - A venture backed startup inquired about a new marketing site, and at the time, the biggest project I had done was around $10,000. I did some research on the company and knew that they had recently raised quite a bit of money, on the initial client call, I also asked for their budget, and they were transparent that they had around $20,000 US to spend. I had never charged that much for a project, but I had confidence that I could do the work, and the client had specifically reached out to me because of my past work. I decided to quote the work around $17,000 US, or about $23,000 Canadian. It was more than double what I had charged for any website before, and I was so scared to send the quote. But they agreed, without any negotiation, and we did the project. Taking on that project gave me so much assurance that I could do work at a higher rate, and helped me feel confident to charge more on new projects. I think this story illustrates that a) you can break your own rules, b) you should always ask for a client’s budget.

Once you do work at a higher rate, that becomes your standard. You should continue to raise your rates until you are consistently getting feedback that you are too expensive. And honestly, I’m three years into this and I still very rarely hear that I’m too expensive. When you start to do work at higher rates, you find clients that have higher budgets. When someone says that you’re too expensive, it might very well be that your rate is fine, its just not aligned with that particular client. Raising your rate incrementally helps you see that there are clients who want your services at every budget range, low and high.

Paying yourself

Service based business are lumpy. What I mean by that is that one month you could make $10,000 and then next you could make $400. It’s the nature of service based work. When you sign a project, you get a lump sum, when you finish a project you get a lump sum, but if you have awkward timing in projects, you could be going a while between payments, even if you are working consistently. There are lots of folks who try to mitigate this lumpy nature of service work with retainers or the ‘subscription model’ that we’ve touched on briefly, but I’m not a fan of either and I think there is a better way. Personally, I like working on projects that last 8-10 weeks, and then turn over. I’m constantly working on new things, I get to explore new clients regularly, and I can plan breaks with zero work fairly easily. So if my payments aren’t consistent, how do I take the stress out of such a roller coaster of finances?

I pay myself the same every month, regardless of how much my business earns. I wasn’t able to do this right away, but when I started doing it, it made everything so much less stressful.

We talked about calculating your functional hourly rate, and that you should go with a number that not only covers your minimum expenses, but also has wiggle room for savings and downtime. If you’re charging a rate that covers more than your minimum, Inevitably, some months you’ll earn more than others, and build up a surplus in your accounts. Because I know what my functional rate is, that’s what I pay myself every month. You obviously need to keep track of your income to make sure you aren’t paying yourself more than you are making, but generally if your schedule is busy, you’re consistently raising your rates, this is a good approach.

If you’re not yet at a stage where you have enough buffer to pay yourself monthly, I would try to focus as much as possible on increasing your income through either increasing your rates and getting more work, or lowering your expenses.

If you find yourself with a lot of buffer at the end of the quarter or year, you can pay yourself a bonus. But having that buffer is a safety net in itself, and I would encourage you to keep 3-6 months in expenses as an emergency fund in case you don’t get work.

Comfort lies in the in-between where you have more than you need, and if you aren’t in that spot, you need to adjust one way or the other. Increasing your income takes time, but has long lasting impact. I will talk about this more in the next section.

Receiving money

This video is going to cover everything you need to know about receiving money, but to start, let’s touch on:

Why you should absolutely hire an accountant

I am in the absolutely privileged position that both of my parents are accountants, and both of them support me in my business. My mom is my bookkeeper and my dad is my tax accountant. My dad has always filled this role, but my mom has only been my bookkeeper for the last year. If I did not have them, I would be a mess. And that is my message to you. The number one thing I would spend money on as a freelancer, beyond any tool or subscription, fancy office chair, or conference, is an accountant. I am a designer and the reality is that I have never been great with math. But that doesn’t mean I am doomed to be bad with money, it just means that I need more support. Hiring an accountant will save you time, stress, and hopefully, money. I would recommend looking for an accountant that has worked with a sole proprietor before, or is familiar with taxes for freelancers. An accountant will make sure your tax filing is accurate and complete. The penalties for getting this wrong are substantial, and you will not be able to use ignorance as an excuse with the IRS or CRA. You need an accountant.

Okay, back to receiving money

Once a client has agreed to pay you, there is the matter of actually receiving their money. Early in my freelance career, I was so focused on getting a client to sign a project, that it hadn’t really crossed my mind how they were actually going to pay me. Since I’m based in Canada, I assumed most of the Canadian clients could e-transfer me or even send me a cheque - that’s how I’d been paid for other things at my normal contract jobs. However, I quickly ran into a few situations I hadn’t considered:

  • What if the transfer amount is above daily e-transfer limits?
  • What if the client lives in another city and wants to mail me a cheque?
  • What if I have a client in another country?
  • What if I have to give someone their money back?

What seemed like a simple thing, payment, was easily rising to the top of my google search lists. I eventually figured it out, using multiple different payment methods over the years, and making some mistakes.

Over the three year’s I’ve been freelancing, I’ve accepted payment in the form of:

  • Service trades
  • Cheques
  • E-transfers
  • Paypal
  • Credit Card
  • Direct deposit from a bank
  • Direct deposit from multiple payment platforms like bill.com and gusto
  • Wire transfers through Wise

Each served it’s purpose at the time, and to be fair, all of them did get me my money. However, some produced headaches and others have been nothing but smooth.

My philosophy on getting paid

I want to make it as easy as possible for clients to pay me. Making it easy to pay me doesn’t mean that I am just going to tell my client ‘pay me however works for you!’, it means being clear about payment terms, telling them exactly how much they owe, and giving trusted options to get me my money.

In the contracts section of this course, we talked about setting up payment terms and why it’s important to structure multiple progress payments through a project. Our contract outlines how much a client will pay you, when they will pay you, what methods they can get their money to you, and what happens if something goes wrong. The purpose of the contract is to be clear about payment terms, and indicate that both parties agree to the terms.

At every instance of a predefined payment milestone, whether that be a deposit, progress payment, or final payment, I will set up an invoice. An invoice is a document addressed to the client that lists the services (or products) being sold, their quantities, their prices, payment terms, and any applicable taxes. You could technically do these in a program as simple as google docs, but I have always used invoicing software that will automatically calculate taxes and add them on for me. In the beginning I used Harvest because it was a combination time tracking and invoicing tool, but more recently I’ve been using quickbooks. More on that soon. The important thing here is that you have something official looking to send the client to tell them exactly how much they own. Clients are running a business, and every business needs to have proper documentation for their expenses and sales. The invoice serves this purpose, to be evidence of the expense.

My very very first freelance project I remember remarking to my boss that I was frustrated that this client hadn’t paid me yet for a project deposit and she asked “when did you send the invoice?” - and you know what? I hadn’t sent an invoice at all. I listed how much they owed me in our contract and just figured that was enough and they would just send me money. Wrong. That’s not how businesses operate. But I had never done it before! I didn’t know.

Typically on an invoice, you will also include note of how the invoice can be paid, like ‘invoice can be paid by e-transfer to info@business.com’ or ‘invoice can be paid by credit card at the link provided here’ or listing your direct transfer info like an account number, etc.

Payment Methods

I’m going to review each of the payment methods I’ve accepted over the years and tell you what worked and what didn’t. I will also review my current setup to show you how I still use multiple methods.

Service Trades

  • Not a lot to touch on here - a trade is when you offer someone your services in exchange for theirs. No money is transferred, but you receive something in exchange for your services or work that is of similar or equal value to what you are giving them. I’ve used service trades a few times, to trade a logo design for a nice meal, or to trade a web design for copywriting work. Trades can work well with low-stakes work, and if you really value what the other person is giving in exchange. I don’t like to trade my services for anything over $1000 in value, because things can get tricky if you don’t get what you expected in return. I ask myself “If I ended up not getting anything in exchange for this work, would I still be okay with it?” and if the answer is yes I’ll do it. You might have a more lax approach to service trades, but they aren’t my favourite.

Cheques

  • Cheques are a feasible option if you are in the same city as your client, and they can drop it off or if they live close enough to mail it to you. Not all clients are as technically savvy as others, and sometimes a cheque is their preferred method. I will only accept a cheque as a last option if I get pushback on digital payment. Especially for larger payments, I don’t really want that floating in the mail and being delivered at an undermined time. I don’t accept cheque from clients in other currencies, and if you live somewhere where cheques are not readily used, or you can’t cash a cheque in another currency, I’d recommend avoiding this altogether.

E-transfers

  • I live in Canada, and we have a system called interac e-transfer that all major banks are a part of. You can send someone money directly to their bank account by using their email or phone number. It works across banks and across Canada, and I still use this for some clients. The US has something similar with Venmo, but Venmo is a third party company. E-transfers are common among all banks. Your country may have something similar, but it’s basically a digital payment.
  • I like e-transfer because it is simple and familiar for smaller Canadian businesses, and there can be low or no fees associated. However, there are a few instances where e-transfer gets tricky or isn’t the best option. Most banks limit your e-transfers to 2, 3, or 5 thousand dollars a day. When I’m sending invoices that exceed the daily limit, the client has to wait until the next day to send the remaineder of the payment. Which isn’t smooth. This can also sometimes result in the client forgetting to send the second half when they are inevitable busy the next day. It also doesn’t work for clients outside of Canada, so if I had to use e-transfer alone I wouldn’t be able to work with American clients.

Paypal

  • Paypal is an online payment platform that allows payments to be made digitally, and internationally. When I had my first client outside of Canada, my first thought was to use Paypal. I had used Paypal for small things before, and when I did some initial searches other freelancers talked about using this for international payments. And it worked. But I quickly ran into issues. Paypal can hold your money for a certain length of time before releasing it, and I’ve heard stories of this taking months. Luckily for me, it only ever took a couple weeks, but a couple weeks of waiting on a payment after you’ve likely already waited for it to be initiated can be too long. We have expenses and bills. I don’t want my money to sit outside of my control for that long. That was enough to prompt me to stop using paypal, but I also stopped using it because it was just one more payment platform to keep track of. My accountant was asking me not only for my bank transactions, but my stripe account, and my paypal account. I had to cut something out. So it was Paypal. I wouldn’t necessarily say to avoid paypal all together - their fees are comparable to other platforms, and there may be familiarity and trust for the platform where you live.

Credit Card

  • Credit cards also came up first for me when I started to accept international payments, and I had a few Canadian clients ask to pay by card for rewards or other benefits. I created a stripe account, and first accepted credit cards through Harvest, my invoicing software. They had a payment portal directly integrated and I could connect it to stripe for payouts. It worked great. When I moved away from harvest, I created dedicated payment links directly with Stripe that allow me to send a payment page to a client and have them enter their info. I still use these occasionally, and they are most well-suited to lower price projects. I don’t love to use credit cards for higher priced projects because the fees can really eat into your profit. But it is an easy, familiar, and trusted way to receive payment. I get my stripe payouts directly into my bank account, and it’s all fairly smooth.

Direct Deposit from a Canadian Bank

  • For higher priced projects with Canadian clients, I generally get set up on direct deposit from their accounts team directly to my bank account. In Canada, this is pretty straightforward. Most online banking has a direct deposit form you can download and send directly, or you they will ask you for certain numbers from the form. Its straightforward, official, and fast. This is my preferred method of payment from large Canadian clients.

Payment Platforms

  • Often, clients will have an established system in place to pay external vendors, through payment platforms like bill.com or gusto. There are lots of these out there, but basically they allow you to sign up as a vendor to your client’s company, and then you get paid through the platform. Sometimes the payment is directly deposited into your account, and other times you will need to login to initiate the transfer. Most of these are easy to use, and I will use them if the client requires it, or if its the easiest option for them. As long as the end result is a direct deposit into my Canadian account, I’m happy.

International Payments through Wise

  • At the time of authoring this course, I don’t yet have an American bank account. I am planning to set one up, but I’ve been operating for three years without one and It’s been fine. To get around not having a USD account for Americans to wire transfer to, I use WISE for international payments. Wise is an online platform to send and receive international payments. Wise allows you to set up a US bank account that clients can pay into, and then you can transfer the money to your currency and send it to your bank, or use it to pay other people, or keep it there. Wise is super smooth and easy to use. I set up my account in a day or so, and my clients can pay me like any other American ACH payment they would make. There is a fee associated with converting currency, but that fee combined with the transfer fee is much much lower than any credit card processing fee or platform fee elsewhere. I use wise and will continue to use it until I have a USD bank account of my own.

While I have accepted multiple payment forms over the years, I think that the best way to receive money is usually bank transfer, either directly or through wise. It cuts down on the fees as much as possible, is fast, and trusted. My second choice is a payment platform, and if the only option is e-transfer or credit card I will take those as well. I do want to make it as easy as possible for the client, and try to balance that with my accounting requirements.

Handling Money

Great, you’ve been paid, the money is in your account. You’re all set right? Not quite. I really want to focus on this section because handling money as a freelancer can be life-changing in both good and bad ways. How you handle your money will determine the success of your business. You could be the most amazing designer in the world who constantly delivers great work, but if you can’t handle your money properly, you’re going to find yourself struggling. I don’t want to scare you about money - money is amazing, it brings freedom and joy and stability, and I promise money in general as a freelancer is positive, but it does need to be treated with the respect and gravity it deserves.

So what do you do when you get paid?

First things first, you set aside the money that isn’t yours. “What do you mean grace, all that money is mine?”. No it’s not, and this is in two forms - deposits and taxes.

Deposits

When I sign a project, I require a 50% deposit upfront to book the time. But I could be taking that deposit 2-3 months ahead of our actual work starting. When I receive that deposit, I’m not going to go out and spend it, or in more official terms, consider it ‘earned income’ until that work has started or made significant progress. Yes, technically, you could have a clause in your contract that all deposits are non refundable and you can take your clients money and run with it. But I can’t do that. Not in good consciences can I take a deposit and spend it before I have earned it. If I client were to come back to me in dire straights a few weeks before kickoff and need to cancel the project, I would refund their deposit. I don’t want to take money that isn’t mine, and I don’t feel good about that. If we start the project and the client decides to cancel after they have already received work, even if it’s just concepts, that’s a different story. I have never refunded a 50% deposit after the project started. If a client wants to cancel at that point, that’s fine, but I will be keeping the deposit. I have given partial refunds if the situation warranted it. Cancellations have thankfully been a really rare thing for me, and it’s only ever happened twice:

  • The first time this happened was with a client who I was excited to work with - a realtor who needed a brand refresh and new website to showcase their growing team and listings. We got through the concept phase and the client just wasn’t vibing with what I was creating. We had a few rounds of revisions but in the end I think it was a combination of a bad style fit, and the client not being clear on their values and priorities before engaging in the project. They weren’t sure who they were, so seeing visual concepts of who they could be was more confusing than it was helpful. Typically a client will just ‘know’ which direction is the right one, because they know their business and their customer and themselves. It just wasn’t a good fit. They sent me an email wanting to cancel just before we got into the full website design. Because I was time tracking, I knew I was about 25% of the way through the estimated hours for the project. I ended up giving a refund for my unused hours to end the relationship on good terms. There were parts of the project that I was finding really frustrating, and part of me was glad we parted ways. I was happy to refund the client in this case.
  • The second time this has happened to me was with a client who signed a contract for a website design. It was for an insurance tech startup, and I believe it was a 6-8 page website. I wasn’t doing dev, it was design only, and a tight timeline of 4 weeks to go from concepts to final flats. The first presentation went well, or so I thought at the time, they received the work positively and I gave them next steps for feedback. I didn’t hear back when I expected to, and when I followed up, I received a fairly harsh response that the work wasn’t what they were looking for, and gave me an ultimatum that I could either do another round of concepts, or that they wanted to cancel the project. The email wasn’t outright nasty, but it wasn’t kind either. I’ve experienced this a few times where we miss the mark on the first round, and I go back to the drawing board and present all new concepts the next week. Heck, one time I did 6 hero section designs just to try to nail down a direction, all beyond our initial scope. And I do those things because my clients trust me, and I trust them, and we all want the work to work. Giving me an ultimatum was a breach of that trust - it felt like a demand rather than a collaboration, and at that point I was done. I told them that I would be cancelling the project at their request and did not refund their money. They asked, and I stated that the 50% deposit was non refundable, and that a significant portion of the work had already been complete, and the hours had been spent. Both were true. But mostly I just didn’t want to continue working with them. They showed me who they were, and it wasn’t kind, and I didn’t want to work with them anymore, and I didn’t have to, because of my contract.

In my opinion, deposits should be treated as unearned income until the project starts, and you should keep them separate, or at least keep track of them, in case something goes wrong.

Taxes

Disclaimer: none of the content in this section is legal advice. I always recommend reaching out to an accountant in your area that has experience in taxes for sole proprietors or situations similar to yours.

The second piece to money not being yours is in the form of taxes. I’m in Alberta, Canada, so all of my information on taxes is going to be rooted in my personal experience, but most places are similar and the knowledge will still be useful. When you earn income, a portion of that income has to go towards taxes. It’s the cost of living in a functioning society, and I’m fine with it. My taxes pay for roads and parks and healthcare and the general functioning of living life in the western world. I sometimes see a lot of talk online about how to best minimize your taxes, and while there are some straightforward ways to do that, I would not spend your time obsessing over it or losing sleep about it. Taxes are essential. If you want to worry about something, worry instead about increasing your income.

In Canada, I have to pay income tax provincially and federally and contribute towards CPP, or the Canada pension plan. I also have to collect a 5% government sales tax (GST) on all work that I do for Canadian clients. Because these taxes represent a significant expense on earned income, I work them into my prices. I know that about 30-35% of any income I earn has to go towards taxes, so I will calculate how much I want to earn on any piece of work, and then figure out how much I need to charge on top of that to actually earn that amount.

When I get paid from a client, I immediately take out that 30-35% and put it in a separate account and do not touch it, under any circumstances. That’s not my money, that’s the governments money, it’s just under my care right now. Your location and government will determine what percentage of your income you need to save. If you aren’t entirely sure, save more than you need to. When you get your tax bill and you have more than enough to cover it, it’s like a fun surprise and an extra bonus. If the opposite is true, it's probably a very bad surprise and will cause a lot of anxiety.

Separating out what you owe for taxes right after you get paid is a solid strategy to ensure you don’t get burned later on. But, where should you save it? Let’s get deeper into handling money and talk about how to structure your freelance finances.

Organizing your money

I asked my parents what my biggest mistakes were from an accounting perspective in my first year, and they came back with two essential things that they would want anyone else to know.

  1. Your business finances should be completely separate from your personal finances
  2. A central database of all of your invoices and transactions will save you a lot of time and headaches

Separating your accounts

Let’s talk about the first one. Your business finances should be completely separate from your personal finances. The details here will depend on whether or not you choose to incoroporate your business or operate as a sole proprietor, but the concept is the same. You need to have separate accounts for your business life and personal life. If you mix the two, you are not only going to give your accountant a headache, but if you ever get audited by the CRA or the IRS, they are going to not only tear apart your business finances, but your personal ones as well. Keeping things separate and as clean as possible is the goal here. I operate as a sole proprietor, and am not incorporated. I had considered opening up a completely separate bank account at a separate institution when I started freelancing, but frankly never got around to it and so all of my accounts are together, which is fine. At my banking institution I have four separate accounts and two separate credit cards.

  • Business checking account (this is where people send me money)
  • Business savings account (this is where I save for taxes)
  • Personal checking account (this is where I pay all of my monthly expenses)
  • Personal Savings account (this is where I save money for personal things)
  • Business Visa card (all of my business expenses go on this card)
  • Personal Visa card (all of my personal expenses go on this card)

The only time I transfer between the account is to pay myself from my Business Checking into my Personal Checking. The rest of the time I keep personal to personal, and business to business.

Keeping track of your money

The other piece here is that you should have a database of all of your invoices and expenses, as it will save you a lot of time and save your accountant a big headache. In my first year freelancing, I used a software called Harvest to time track and create invoices for all clients. It wasn’t amazing, but it did help me organize all of my invoices. I have since moved to Quickbooks, where I can not only send invoices, but I can also track my expenses through a direct connection to my business credit card, and track payments through a connection to my bank accounts. Quickbooks is kind of a pain to use as a designer, mostly because the UI is frustrating, but if you can swing the cost, I would absolutely recommend using it or another similar accounting software. These softwares make it simple to track your income and expenses and will help keep your money organized and ready for an accountant to organize come tax time. I will once again repeat here, that ignorance is not an excuse for not keeping track of your money. It’s an essential task as a freelancer, and once you have the right systems in place, it’s not as scary as it seems.

Should I incorporate?

No, or at least, you don’t need to be in a rush to incorporate. This will also largely depend on where you live and what the laws are there (again, hire an accountant), but in my experience you shouldn’t be in any rush to incorporate your business. You should be able to operate as a sole proprietor for your first year, and possibly even longer. I am 3.5 years into freelancing and just now am incorporating, and even now, I don’t really need to it’s more of a choice. Depending on where you live, incorporating could give you more options for tax structuring, holding assets in your business, and paying employees. But I will repeat, you don’t need to be in a rush to do any of this. In your first year of freelancing your main focus should be on doing good work, increasing your pricing, and closing clients you want to work with. Get the basics down first, and then think about this.

Money Habits

I was hesitant to include this section in the course, because I don’t want to tell you how to live your life. But you bought my course, and I assume that’s because you trust what I have to say. So I’m going to go over some things I think are essential when we talk about money in general, but particularly spending it. A lot of this is advice I absorbed as a young designer, and I’m going to re-share it with you here.

Increase your income

I follow a personal finance influencer named Bridget Casey, who has provided years worth of guidance and wisdom just by following her on instagram. When I was working at my studio job, I started following her. She talked about a lot of things, but the number one piece of advice she gave was that increasing your income is the best way to improve your financial situation. I think for a lot of people, but women in particular, the advice they get about money focuses on how they can budget better, or how they can use ‘hacks’ to increase their savings. Bridget was honest with the fact that you can only cut out so much, and if you’re spending all that energy trying to decrease your spending, you might as well spend some energy figuring out how to earn more in the first place. Earning more money improves just about every aspect of your financial life. Money brings happiness not because of the things you can buy with it, but because of the security and stability it brings to your life. Having more money than you need gives you choice. And choice is freedom. When you have more money, you have more choices.

I heard Bridget’s advice at a critical point in my life - I was working at a studio job making between 30-40K a year. I knew that I wanted to start a family in the next 5-ish years, and trying to do that on my existing income wasn’t what I wanted. I looked around at my local industry, and while some designers were making a little bit more money, it still wasn’t a lot. I started to see more freelancers online talking about how they were able to make 100k+ online, and began considering that as a possibility. I knew that my best chance for long-term financial success was going to come with an increase in my income, and freelancing seemed like the path to that increase. I was right, and I can absolutely say that it improved my life in every way possible.

It’s great advice, but putting it into practice takes some intention. It won’t happen overnight, especially as a new freelancer, but I would recommend that with every project you do, you increase your pricing. You should do this until you receive consistent feedback that you are ‘too expensive’, which will come at a much higher number than you’d probably expect. In my first year, I was hesitant to charge super high prices right out of the gate, because I wasn’t confident that I warranted them yet. The way I increased my confidence in charging higher prices was to do it incrementally. Once I had done a project for $4000, I did one for $7000. Once I had done one for $10000 I did one for $15000 and so on. I’ve continued to do this even now, and still haven’t really found a price ceiling. Clients will pay for your skills, but also for your experience. The longer you’ve been doing something, the more proof you have that you can do it reliably, and that reliability is worth a lot to a client. If you can prove that you are a low-risk option (i.e. a lot of experience, very reliable, solid deliverables) you can charge a lot of money for your work.

Live below your means

Another amazing piece of advice I heard was at a design conference - Stefan Bucher, a wildly talented designer with an inspiring library of projects, was giving a talk, and he said something to the sentiment of “I do all of these really cool projects, because I live below my means.” He talked about living in a small apartment, with an older car, and being happy with it. Because when someone came to him for work and he didn’t want to do it, he could say no because he didn’t need the money to keep up a large lifestyle. By spending less on unnecessary expenses, you create a financial buffer that empowers you to take on projects that align with your passion and vision, rather than being forced into work solely for the paycheck.

Living frugally doesn’t mean depriving yourself of comforts and pleasures - it’s all about making conscious decisions to prioritize financial security and creative freedom. Imagine the satisfaction of being able to turn down a project that doesn’t excite you or doesn’t align with your values. Living within your means grants you the freedom to curate a portfolio that truly represents your passions, rather than work that was driven only by your need for money.

Investing in your business

One of the best ways you can spend your money is by reinvesting it into your business. As a freelancer, this is going to look a bit different than what typically comes up with entrepreneurs talking about reinvesting in their business. You are your business, so essentially, you need to invest in yourself, your skills, and your tools. Practically, this can look like purchasing a course to beef up your skills in a particular area, or travelling to a conference where you will learn more about your industry and make network connections. If the investment is going to make you a better designer, or increase your skills, or give you better connections, it’s a worthwhile expense that will likely return it’s value and allow you to increase your pricing even further.

Consume financial literacy content

This point brings me back to the first thing we talked about in this section - I was empowered to take charge of my financial situation because of someone I followed on instagram. Because I was always bad with math, I kind of assumed that I was just bad with money, and that a stable, wealthy future wasn’t in the cards for me. That absolutely wasn’t true for me, and it’s not true for you either. I would encourage you to find voices in the personal finance space on social media that align with your values, and absorb what they have to say. You might not use all of it, or agree with some of it, but adding in personal finance content to my feed has helped me learn so many things simply because I see it everyday. I didn’t have to take a course or sit down and study, all I had to do was listen. Your situation may be different than mine, maybe you have kids, or debt, or multi-millionaire goals. The point is, find someone who aligns with your money values and goals, and hear what they have to say.

Conclusion

As you can tell by now, I have a lot to say about money. It’s the reason I started freelancing, and the reason I still am. The narrative that creatives are doomed to a ‘starving artist’ life is simply a lie. You deserve to earn an income from your skills, and you may be surprised just how much you can make.

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