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Published on June 21, 2021

How To: Calculate and Boost Your Net Worth While Working as a Freelancer

Start today and harness the power of compound interest

calculating and boosting net worth for freelancers

Photo by Chris Liverani on Unsplash

Building your net worth is a key step towards financial independence, early retirement, and personal growth. Stated simply, net worth is everything you own minus everything you owe. Successful growth requires both consistency and starting as early as possible to take advantage of compound interest (more on that later).

Freelancers face particular challenges along their journey, including:

  • Irregular income streams
  • Lack of employer provided benefits like paid vacation, health insurance, sick days, family medical leave, or 401k retirement plans
  • Higher tax liability associated with the self employment tax
  • Business expenses including marketing, legal, and office supplies

This article will cover everything a freelance worker needs to know about calculating and building net worth.

Citizen Upgrade is not a registered investment, legal or tax advisor or a broker/dealer. All investment/financial opinions expressed by Citizen Upgrade are from the personal research and experience of the author and are intended as educational material for informational purposes only. It is very important to do your own research and analysis before making any financial decisions based on your own individual circumstances. Citizen Upgrade has done it’s best to ensure information provided is accurate and useful, but recommends you seek individually tailored advice from a professional.

Calculating Your Net Worth

calculating and boosting net worth for freelancers

Photo by Chris Liverani on Unsplash

First things first, let’s calculate your net worth starting point. You can create your own simple excel spreadsheet or use this calculator via Nerdwallet to tally your assets (what you own) and subtract your liabilities (what you owe).

Although this calculator includes “real estate” in the assets column, there is significant disagreement over including your personal home in that category. Personally, I think homeowners should include the equity they hold in their property as an asset since it appreciates and they can draw against its value (home equity line of credit). Those who argue against counting your home towards your net worth argue that you’ll always need a place to live, and if you sell it in a hot market you’ll need to purchase an overpriced home to replace it.

Assets include: cash (in savings and checking accounts), real estate, investment accounts, retirement accounts, and other things that one could easily sell for cash (your car, collectibles, etc.).

Liabilities include: your home mortgage, credit card debt, car loans, and student loans.

Boosting Income

Boosting income is usually the first step in boosting your net worth, since this works to increase the “assets” side of the equation. For a 9-5 employee there are a few options to achieve this: you could ask your current employer for a raise or promotion, get a new higher-paying job, or start a side hustle.

For freelancers, boosting income is a bit more complex. An obvious way to start is to seek out more clients to boost the volume of work performed. Freelancers can ask past clients for referrals or seek out new clients on platforms like fiverr and upwork. This strategy will only get you so far, since your time soon becomes the bottleneck.

Instead of working longer hours, freelancers can try to work “smarter” hours. For example, focus on the higher quality clients that pay higher rates and provide more regular work. This stems from the “Pareto Principle”, also known as the 80-20 rule. The idea is that we get 80% of our results from 20% of our efforts. So the trick is to identify the 20% of efforts, or clients in this case, that are the most valuable.

Another strategy to boost income is to increase your hourly or daily work rates across the board. The risk here is that you may end up losing a few clients, but those who stay will be more valuable to your bottom line.

Finally, freelancers can boost their income by expanding the breadth of services they provide. This might involve sub-contracting work to other freelancers, building strategic partnerships with others, or learning new skills to offer these services themselves.

Reducing Spending

The second step in boosting net worth also focuses on the assets side of the equation. By spending less, you end up keeping more of your income. You can then use these extra funds to boost your savings or investment account deposits or to purchase some other form of income generating asset.

Successful spending control strategies all depend on creating a system to track your expenditures, and then applying a goal oriented budget to this system to boost the amount of money you’re left with at the end of the month.

Start by making a spreadsheet to track every expenditure you make over the course of the month including rent (or mortgage payments), food, transportation (car payments, gas, insurance, public transit pass), and any business expenses. For those looking for an app-based solution for this, there are many budgeting tools to choose from that download your expenses from your bank account and credit card statements (e.g. mint.com & YNAB).

Once you can identify the categories of expenses that are the biggest drivers of your spending, you can start to strategize ways to cut back by setting a budget target. When you’re getting started, don’t get too caught up on the daily coffees or that avocado toast you love. Focus on the big ticket categories like housing, transportation, and food. Your budget goals might direct you to cut back on eating out, downgrading to a smaller home (or renting out a room), or switching from car ownership to ride sharing or public transportation. Your spending tracker will also help you identify and cancel recurring payments or subscriptions that you no longer use.

Freelancers should identify and track any expenses that count as business expenses, since these can often be entered into your annual tax returns to reduce your tax liability.

Paying Down Your Debt

From steps 1 and 2 above, the goal is to earn more than you spend. Once you do that, you free up resources to pay down your debt, which addresses the liabilities column of your net worth tracker.

Start with so-called “bad debt” like credit card balances, auto loans, and student loans. Now that you have a budget, hopefully you won’t accumulate more of this in the future. Prioritize paydown of debt with high interest rates, and where possible try to consolidate debt to lock in the prevailing low interest rates in the market.


Once you’ve eliminated bad debt, you can start to invest your monthly savings into growth or income generating assets. These can include high interest savings accounts, stocks, bonds, mutual funds, ETF’s, real estate, etc. The sooner in life you can start doing this, the sooner you can benefit from compound interest.

"Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it."

-Albert Einstein

Compound interest refers to the impact of “time in the market,” where returns on an investment accelerate over time. You can visualize this with this compound interest calculator and use an example of an investment account that yields an annual return of 5%:

  • At the end of year 1, a $1,000 investment will gain $50 and be worth $1,050.
  • At the end of year 2, the same 5% return is calculated based on the higher starting amount of $1,050. So the investment will gain $52.50 and the new total will be $1,102.50.
  • Fast forward to year 10, the 5% return will be calculated on a starting amount of $1,551.33. So the investment will gain $77.57 that year.

Compound interest cuts two ways. Money you lose to seemingly small fees adds up to huge unrealized gains over the course of decades. Conversely, scheduling regular monthly deposits can add up to significant returns over the course of many years as your annual returns are calculated on higher and higher starting amounts. Take the example above of $1,000 invested at a 5% rate of return. Adding a $50 monthly deposit to the scenario takes the 10 year total from $1,628.89 to $9,175.63.

Full time employees can schedule regular contributions to their 401k and also take advantage of employer match programs. Freelancers can make annual contributions to an SEP IRA or solo 401k. Although they will pay tax on these funds when they are withdrawn during retirement years, these deposits reduce their tax liability for the tax year in which the deposit is made.

Both groups can also usually contribute to a ROTH IRA in combination with or in place of the options above. This investment counts as post-tax investment, so your tax liability for the deposit year won’t change. The benefit comes years later at the time of withdrawals, when both the deposit amounts and the years of compounded growth can be withdrawn tax free.

Building net worth takes careful planning, discipline, and consistency. For 9-5 workers and freelancers alike, the strategy can be summed up in three simple phrases:

  • Pay down your debt
  • Earn more than you spend
  • Invest the difference

Once you master these basic principles, the next step is to align your net worth strategy to your retirement plan and other life goals. Good luck!

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