Plan a set of accounts that keeps business money, tax money and personal money apart.
You finish a project and the client sends S$4,000 (an example figure) to your old salary account, the one your debit card is linked to. Over the weekend you buy groceries, eat out, pick up new shoes and pay the electricity bill from that same account. Three months on, you can't work out which part of the balance was yours to spend and which part was owed to IRAS and to your MediSave account.
Each of those purchases was reasonable on its own. What went wrong is the account the payment arrived in. The base-pay method from lesson 1.1 depends on keeping business money, tax money and personal money apart. The practical way to do that is three accounts, each with one job, and a fourth you can add if you want.
Every client payment arrives in the holding account. Nothing gets spent straight out of it. Leave its debit card at home, keep it off PayNow for everyday spending, and don't set up direct debits for any personal bill against it. It acts as a reservoir: payments come in at irregular times and in uneven amounts, and money goes out only on dates you choose.
The tax and MediSave pot takes a fixed share of each payment on the day that payment comes in. That money is already committed. It will cover your income tax bill and your MediSave contribution. Both are due months after you earned the income, and module 2 explains why that delay causes trouble for so many people.
Your personal account gets your base pay on one fixed date every month, the way a payslip used to arrive. Rent, food, transport, insurance premiums and transfers to savings all come out of it. Since base pay stays the same each month, you can budget from this account exactly as you did when an employer paid you.
If you add a fourth, make it a business costs account. Software subscriptions, equipment and printing are paid from it, and you refill it from the holding account. You can manage without it, but with every business expense on a single statement, the record-keeping in module 4 becomes much simpler.
You don't need to open a new bank relationship. Many banks let you add savings accounts or sub-accounts inside the app you already have. Look at the fees and minimum balance on each one before you settle on it. Also keep track of how much you hold in total at any single bank, because of SDIC deposit insurance. Lesson 1.3 of How money works, "What SDIC deposit insurance covers and what it does not", sets out what is covered and why that total matters.
In the app, rename the accounts after what they do: Holding, Tax and MediSave, Salary. Each time you log in, the label tells you what that money is for.
Clients should only ever see the holding account details. If a long-standing client still sends money to your personal account, transfer it across to holding that same day. Then change the bank details on your invoice so the next payment arrives in the right place.
Mei freelances (her numbers are an example). A client pays S$4,000 into her holding account. That day she transfers 15%, which is S$600, into the tax and MediSave pot, so S$3,400 remains in holding. She then leaves it alone until payday. A standing instruction on the 25th of every month sends her S$2,300 base pay to her personal account. Her business costs of S$300 a month come out of holding, or out of a business costs account if she opens one. Anything left over stays with the business.
You fill the pot first, as soon as the payment arrives, because that is when the cash actually exists. If you leave it until the end of the month, you end up transferring whatever happens to remain. After a busy month, that can be less than the share you owe. The base pay transfer follows on its fixed date, and the business keeps what is left in holding.
Treat the pot as off limits. If a quiet month forces you to borrow from it, write down the amount and pay it back out of the next client payment before any other transfer. Once the pot has been drained, it becomes a tax and MediSave bill you have no money to pay.
You don't need a separate buffer account, because the holding account already does that job. Leave one month of base pay in it as working cash, the money that will pay next month's salary. Whatever sits above that one-month level is your income smoothing buffer. It keeps your base pay going through one or two lean months.
Suppose Mei's holding account later shows S$9,200 (another example figure). Of that, S$2,300 is working cash and S$6,900 is buffer. Divide the buffer by her base pay, S$6,900 / S$2,300 = 3, and you get the number of months she could keep paying herself without any new income: three.
This balance tells you more than any other figure in your freelance finances. A rising balance means the business is bringing in more than you pay yourself. A balance that drops over several months means the business is bringing in less than you pay yourself, and module 8 shows how to catch that early.
Some people keep a separate personal emergency fund as well, which module 3 of The Singapore personal finance system covers. For freelancers, the holding account buffer and that emergency fund are often the same money. Choose which one it is and count it only once.
The setup is working when you can sketch it without notes: the account each payment lands in, what leaves it, how much, and on what date. Before you change anything at your bank, draw that flow on paper as boxes joined by arrows. Write the share or amount on every arrow, so the whole arrangement is clear to you first.
Draw your accounts as boxes with arrows between them, and write the share or amount that moves along each arrow.
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