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The “3 Accounts” system: This will change your freelancing life


It’s rare in life that someone will give you some practical and logical advice that will change your life forever. But this is exactly how I felt when I was told by my accountant to have a “three accounts system” to manage my freelancing income.

For years I had struggled with three major pain points:

  • Keeping my personal and business expenses separated.
  • Knowing how much money I was going to owe in taxes.
  • Setting a limit on how much money I should be spending per month.

Recently my sister started freelancing and I was happy that I could save her from all of those years of confusion and stress that I had endured.  I told her to do the following:

1. Open a checking or business account. Label this as your WORK account.

a) Every time you receive a paycheck, deposit it into this account.

b) Every time you make a business-related purchase (Ex: camera equipment if you’re a photographer) or incur a business-related expense (Ex: a taxi you took to a job) charge it to this account.

2. Open another checking account. Label this as your PERSONAL account.  

a)  Look at your fixed and variable personal expenses over the course of a few months.

b)  Figure out an approximation of how much money you need to cover your expenses every month. This will be your salary.

c)   Transfer your salary from your WORK account to your PERSONAL account at the beginning of every month.

d)   Make adjustments accordingly. If you run short on cash for your personal expenses, pay yourself a higher salary.

3. Open a savings account. Label this as your TAX account.

a)   Ask your accountant what % of every paycheck you should be saving for taxes.

b)   Every time you receive a paycheck, transfer this tax % from your WORK account into your TAX account.

c)    Throughout the year, you will know how much money you owe the government in taxes because this amount will be saved in your tax account. Don’t spend that money!

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