The four, no, SIX bank accounts every freelancer needs

For tax season, I’m running some posts from my old blog pertaining to our book, The Money Book for Freelancers.*

The problems that arise with money and the freelance life are often ones of organization. If you set up your financial accounts properly, your financial goals will be right in front of you every time you check your finances. The way I see it, every independent worker (i.e., sole proprietor) should have at least FOUR bank accounts. I’m just talking about US workers right now.

1. The Spending/Bill-paying Account: The account into which you deposit every check you receive.

2. The Emergency Account: Contains 3 to 6 months of living expenses, if you can swing it.

3. The Tax Account: Collects the money you need to pay your estimated and annual taxes.

4. The Retirement Account: Collects the money you want to contribute to your retirement until you have enough to start investing.

I consider these accounts to be the minimum you must have to run a successful freelance business. Later, when you’re ready to advance, I’d consider adding two more accounts:

5. The Medical Account: Collects money for health insurance premiums, Health Savings Accounts (HSAs), and so on.

6. The Dream Account: Collects money for your future dreams: a house, an apartment, a car, a business, or for your as-yet-unborn children.

This is pretty much the advice we offer in The Money Book for Freelancers. You might think that keeping so many separate accounts is unnecessarily complicated. But we’ve found that if you don’t have a separate place to keep money earmarked for Retirement, say, you won’t save for retirement. You’ll find other, equally important things to spend that money on before you have a chance to save it. The same goes for the tax and emergency accounts. If you don’t consistently save money to pay your estimated and annual taxes, you’ll end up scrambling each quarter or as each April 15th approaches to find the money to cover your tax bill. So separate is smart.

Nearly every bank has some kind of online presence these days, but we like ones primarily based online—such as Ally or Capital One 360—for a couple of reasons:

  • Most online banks offer better interest rates than brick-and-mortar banks.

  • Most allow you to open a new account at will at any time, so you don’t have to bother making time to visit a physical bank and to talk to a flesh-and-blood bank officer.

  • Most allow you to apply a nickname to your accounts.

Little things make a big difference. Imagine logging on to your list of online accounts and seeing them in front of you with nicknames such as “My Rainy Day Account,” “My Waitin’ For the Taxman Account,” “My To-Be-Invested Retirement Account.” Names like this are focused on your specific needs, and far more personal than a list of account numbers that are virtually indistinguishable from each other.

Back in the day, we used to recommend keeping a local bank because it was still necessary to have an institution where you could drop by to deposit a physical check. Back then, the only way to get money into an online bank account was to transfer it from your local bank, or to mail in a paper check, which took daaaaaaaaays. Now almost all these online banks have an app that allows you to scan or photograph your check and deposit it in a flash.

How much should your save from every check? That’s a question for another day. For now, start investigating some good online savings banks at You will want a personal checking account for the spending/bill-paying account, and a savings account for the other accounts. US banking rules govern limit your withdrawals or checks you can write out of a savings account to 6 per month, but typically the interest on those savings accounts will be higher than your checking account.

Some savings accounts have an ATM card option, but it’s best to decline ones that do. The more obstacles you can put in your way, the less likely you’ll be to raid those accounts when emergencies occur.

Always check the interest rates. Historically online banks offered better terms than brick-and-mortar banks, but that’s not always the case.

* This post first appeared on my old blog August 30, 2006.

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