Life with a fluctuating income is a lot like being left-handed: The world isn’t designed to meet your needs, so you need to adjust accordingly.
Those who make the leap into solopreneurship are often struck by all the little things they took for granted as salaried employees. Things like having health benefits, taxes and retirement savings deducted from their earnings, knowing exactly when the next injection of cash is coming, or what they’ll make next month. Even monthly billing cycles for things like rent, student loans, and car payments are based on the assumption of predictable monthly earnings.
Most don’t ditch the corporate life because they’re really good at finance and tax planning—unless, of course, they’re venturing off to become an independent accounting professional. For most, having to suddenly act as your own finance department is not just jarring, but also distracting from the countless other challenges that come with establishing an independent business.
“Solopreneurs have so much on their plate already; adding money stress is siphoning off creativity that would be much better spent making their businesses successful,” says Ashley Lapato, personal finance educator for budgeting software provider YNAB. “Once they get a handle on it, they tend to see more success.”
Here are some expert tips to help solopreneurs put away the calculator and spreadsheets, and get back to the things they do best. (Unless, of course, that thing also involves a calculator and spreadsheet.)
Know your baseline
When you don’t know how much will be in the earnings column each month, it’s even more important to get a handle on expenses.
According to Lapato, the first step is understanding the bare minimum you need to support your lifestyle.
“That might not include your Netflix subscription, but it’s things like your mortgage, minimums on any debt, your car payment, and groceries,” she says. “Then add irregular expenses. Because once you make that leap into solopreneurship, those irregular expenses can feel like emergencies.”
For example, if you travel to visit family each year, want to send your kids to summer camp, or have a big annual auto insurance bill, Lapato recommends breaking up those expenses and incorporating them into your baseline. Knowing that number, she says, allows solopreneurs to cover the necessities and then, once they earn that minimum, start saving for the next month.
If, for example, that baseline is $8,000, Lapato says every dollar you earn in a given month after reaching that $8,000 minimum can be put toward next month’s baseline, longer-term savings, discretionary spending, or investing in the business. “I would want at least three months of baseline buffer covered before taking the leap” into full-time solopreneurship, she adds.
Set up a legal entity
There comes a point at which American solopreneurs can start seeing big tax savings by setting up a limited liability company (LLC) and registering as an S corporation, establishing a formal business for their solo venture in the United States—though similar tax structures exist elsewhere, too.
“If you make $70,000 and you’re going to get to $100,000 in the next couple of years, it’s the right solution,” says Ran Harpaz, the CEO of Lettuce Financial, an accounting and tax software platform for solopreneurs earning six figures. “People on our platform see annual average savings of $15,000, so the S corp election and the structure of the company are very meaningful.”
Harpaz explains that having an S corporation separates business earnings and expenses; your customers pay into the company, and the company pays you what the government considers a reasonable salary. The salary portion is subject to traditional tax requirements. The rest is taxed at much more favorable corporate rates.
Creating a separate business entity also allows you to open business bank accounts and credit cards.
“It’s the right thing to do compliance-wise, but it’s also the right thing to do for financial management,” Harpaz says, explaining that having separate accounts makes it easier to keep tax-exempt business expenses separate from personal spending.
Put money aside for taxes
There is perhaps nothing more sobering than seeing your first tax bill as a solopreneur.
For those accustomed to having their taxes automatically deducted from paychecks, that bill will make you go numb, especially if you haven’t planned accordingly. Though it’s hard to predict how much you’ll owe when you don’t know how much you’ll make, solopreneurs can often make an educated, conservative estimate and save accordingly.
“Every Monday, my wife and I fill out a sheet that says how much income we made [the previous week], how much we have to set aside for taxes, and what we spent,” says Justin Welsh, a content creator and author of The Saturday Solopreneur newsletter. “We pay our credit cards off, and then we set aside the money for taxes, we save and invest anything that’s left over, and that is a weekly recurring meeting that we’ve done for over five years.”
Over time, Welsh says the weekly fluctuations can be used to calculate a more predictable average, which helps the couple anticipate which tax bracket they’ll fall into at the end of the year, and avoid overspending on the good weeks or panicking on the not-so-good ones.
“The goal is never to get too high with the highs and too low with the lows,” he says. “You just pretend you’re average every single week.”
Use tools, but keep it simple
As the community of solopreneurs expands, so does the market for tools and technologies to make their lives easier—YNAB and Lettuce among them.
Welsh, for his part, is bullish on AI, but warns solopreneurs not to over-subscribe themselves. “The whole goal of solopreneurship is simplicity,” he says. “I think you can do that through smart planning, using a simple spreadsheet and a thought partner in an LLM.”
For example, Welsh says solopreneurs can input their income and expense details and ask an AI platform to create a customized financial plan for them, or a contingency plan for when earnings drop unexpectedly.
“My advice to solopreneurs is to start simple and only add software or tools when it absolutely keeps you from making a big mistake or gives you a large percentage of your revenue back through tax optimization,” he says. “Other than that, just try and make as much as you can, try and keep as much as you can, and try and spend as little as you can.”