Do you know where the word freelance comes from? In 1819, “free-lance” was used to describe soldiers who offered their services for payment rather than being bound by loyalty to the king. During the 1970s, the word "freelance" transitioned into its contemporary, non-hyphenated form to describe workers for independent hire.

Managing money is super personal. It also feels like (almost) no one is transparent about their own financial situations. So, let’s talk about it!

I’ve got some life-changing money tips today; let’s jump right in!

Before we get started, quick disclaimer: I’m not a finance expert or advisor and this does not constitute financial advice!

Today, I’m sharing how I manage my money and how you can use this method. This isn’t the only way to do this and your needs might be different from mine! So, ya know, take what works for you and leave what doesn’t, k?

This method of money management sincerely changed my life. I learned it from the great Katie Warren! We’re calling it “The Proportional Paycheck.” Here’s how it works.

The Proportional Paycheck Method

While it’s important to know what you usually spend monthly in specific numbers, it can also be challenging to stick to a budget of concrete numbers when your income fluctuates so much.

This method automatically allocates your income into categories based on percentages. This makes it so you’re spending and saving proportionally, no matter how much money you make each month.

Step 1: Determine your categories

Before you do anything, determine which categories you want to allocate your money to. We based this on freelance taxes and the 50/30/20 rule, then specified based on our personal needs. Here are the 50/30/20 categories:

Taxes
Needs
Wants
Savings

Then, you can get even more specific with custom categories like:

credit card payments
emergency fund
retirement
rent

Step 2: Create percentages for each category

This part can be tricky so you’ll have to play around with it to find your exact categories.

Set aside 15-30% for taxes before you do any other calculations.
Divide what’s left by 50% (needs), 30% (wants), and 20% (savings).
Customize your needs, wants, and savings based on the categories you defined in Step 1.

Step 3: Set up automations

Next, plug those percentages into automations inside your bank account. That way, every time you get paid, your bank will automatically allocate the appropriate percentages of your “paycheck” to your categories. We use Novo (use this link to get $40 when you open & fund an account 😉), but Relay and some other online business banks have similar features.

Tips

Be flexible: you can change your percentages or move money around if you need to! Don’t be afraid to make it your own in the way that works best for YOU.
Move your money: I like to move my money around every 2 weeks. So my retirement reserve gets invested into my Roth IRA, my emergency savings goes over to my high-interest savings account and so do my tax savings, my discretionary funds get moved over to my personal checking, and my credit card payments come out automatically.
Re-evaluate: take time once or twice a year to evaluate how your reserves have worked for you. Maybe you need to add another category or change your percentages. You can look at the reserve activity to see how much you’ve moved money into and out of the reserve, too.

Examples of the Proportional Paycheck in Action

Here are two examples, mine and Katie’s!

Example 1: Rachel

I added a few custom categories for things that I struggle to save for, including Credit Card Payments. I also split out my rent, so I don’t have to worry about it.

Example 2: Katie

Katie is married, she already has an emergency fund, and she makes more money than me. Because of these factors, she’s swapped out the “emergency fund” category for a “brokerage” fund that she funnels into investments. She also contributes to a joint checking account with her partner. Her tax savings rate is higher than mine because her taxes are generally higher.

How to manage money as a freelance writer