I just had a solid month. How much of my earnings should I save for slow months versus reinvesting in my business?
A funny thing can happen to freelancers when it comes to money: every good news situation becomes a dilemma. You have a good month or land a big project, and after doing a quick happy dance, you start to wonder what do I do with this money?
For those who have a regular, stable income, that question might not be as difficult to answer. But when you run your own business and income is about as even as a roller coaster in a tornado during an earthquake, it becomes a complex problem. Do I:
Save this money for the inevitable dry spell?
Invest in a course/tool/support I’ve been considering?
Pay myself a bonus or splurge on something I’ve always wanted?
Pay off debt?
All of the above?
Each of these possibilities might feel like a huge priority. After all, a decent payday today doesn’t mean the good times will last. At some point, things will slow up and you’ll need to rely on your savings, so best to build that up. At the same time, perhaps a course, tool, or outside support will help you stabilize your business so the dry spell is less likely (or further away). But you’ve been working hard and possibly living from paid invoice to paid invoice. Treating yourself is a nice way to celebrate that hard work. And, if you’ve built up some debt, well you probably want to get that paid off, too.
Before we get into some ways to approach this question, it’s important to keep in mind that there is no one-size-fits-all answer. Your financial needs depend on your personal risk tolerance, business stability, life circumstances, and a variety of other factors that are entirely unique to you.
A framework for where to put your money
Start with your personal runway (how much money you need to save): This depends on how many months of basic living expenses you need saved to sleep comfortably at night. Some people sleep well with three months of expenses, others need six months or more. There’s no wrong answer, it’s about what feels secure to you.
Factor in your debt situation: This depends on how much high-interest and low-interest credit card debt you have. High-interest debt (such as credit cards) might need more attention. Low-interest debt (line of credit or business loan) may be less urgent. Your need to pay off your debt will depend on your comfort with that debt and how much of your income your monthly payments take from you.
Factor in your income patterns: If you’ve been freelancing long enough, you’ll have some history to look back on. If your work is genuinely cyclical (that is, summer is always slow or Q1 is quiet), you’ll need to save during your busy months to cover those predictable gaps. Knowing how long those gaps typically last will help you to predict how much money you need set aside.
If you don’t have enough history yet to know your patterns, it’s probably a good idea to err on the side of saving more until you do.
Separate business operating costs from investments in growth: Some costs are crucial, such as having internet access or keeping your website running. Those are operating costs and they’re always your first priority when it comes to business spending. After all, you don’t have a business if those aren’t paid. Growth investments (courses, hiring consultants, coaching) are important if you need your business to grow or are considering a pivot and need to expand your skills.
A little celebration is okay: Not every cent needs to be allocated to major financial goals. If you’ve been white-knuckling it through lean months, sometimes the smartest thing you can do for your business is remind yourself why you’re doing this. Maybe that’s a nice dinner, a weekend away, or replacing a device that’s held together with duct-tape and optimism.
The both/and/also approach: You don’t have to pick savings or reinvestment or debt reduction. You can allocate percentages to each. For example, maybe 50% of any income above your baseline goes to savings until you hit your runway target, with another 25% going to debt and the rest invested in your business and a tiny bit for a splurge. Once you’ve hit your runway, you can shift the percentages as needed.
Don’t forget to reinvest
One thing I’ve noticed is that freelancers often focus heavily on debt and savings — both of which are important — but underinvest in their businesses. And I don’t just mean courses (although those can help). I mean things that free up your time or energy: a bookkeeper, a VA, better software, or outsourcing the activities you strongly dislike.
For years I took courses on aspects of marketing I don’t love, thinking I just needed to learn them better. What I actually needed was to hire someone who does love that work and let them handle it while I focus on what I’m good at (which, ironically, is exactly what I want my clients to hire me for — doing the things I love so they can focus on what they’re good at). That’s an investment that pays off in ways a course doesn’t always.
The tricky part is knowing when you’re ready for that kind of reinvestment. If you’re still building your runway or paying down high-interest debt, it might not be time yet. But if your business is stable and you’re just working harder rather than working smarter, it might be worth reallocating some of that savings toward buying yourself back some bandwidth.
I've been doing business finance all wrong
Recently, I talked to an advisor and learned I was looking at my finances all wrong. Or at least, I had a misguided view of how I access and spend my money (which isn’t all that surprising, given how I was raised—I got a lot of my money attitudes from my parents, who were wonderful in many ways but not great with money, so now I need to break the cycle).
Don’t forget taxes
Taxes are also important and easily forgotten. Before you save, reinvest, pay down debt, or celebrate, make sure to keep money set aside for income tax. A good rule of thumb for Canadian freelancers is 25-30%, though your actual rate might be different. Check with an accountant for guidance.
As mentioned above, what works for one person won’t work for everyone. It depends a lot on how well you sleep on a thin margin. Know yourself and what stresses you out financially, and use that as a guide.
Your life stage and business stage matter, too. A freelancer in year one with no client base might need to invest more aggressively in marketing and systems. A freelancer with 10 years and steady clients might prioritize savings and bonuses. Someone carrying debt might need to prioritize stability over expansion until the weight lifts. Someone close to retirement might be thinking about whether they have enough to pull back on work.
Revise as your career unfolds
As much as there’s no one-size-fits-all solution, there’s also likely no life-long answer for you. Your approach in year one might change as your circumstances change, so revisit this question throughout your career. What’s more important than having a magic percentage in your head is figuring out what helps you feel stable enough to do your best work.
Have you learned any lessons about where to put your money when things are going well? I’d love to hear how other freelancers think about this.
August co-working and marketing sessions
Paid subscribers have access to weekly co-working and monthly marketing sessions. These are structured time for you to work on client work, administrative working, or marketing activities, especially those you’ve put off. Along with the structured work time, you get time to meet other freelancers, ask questions, and get insights into running a freelance business.
If you’d like to join us, upgrade your subscription.
Here’s to making 2026 your best year yet!
Heidi
Great post that's so important. I'd say $ for paying taxes should be socked away first then work on any high interest debt.