It can be hard to believe you can have PTO especially when there are so many other expenses that come into play when freelancing. You alone are responsible for the costs of your office, liability insurance, billing supplies, communications equipment, health insurance, tax liabilities and let’s not even talk about décor! All of these things add up and can start cutting down what you believe you’re earning in the GROSS line of every check you receive. When you start adding these up you might feel disheartened, maybe confused or if you’re like me, you’ll start to believe that you’re worth a lot more than what you’re charging. I didn’t work like a dog for years to make minimum wage. While we’re in the process of raising your rate (the right way) the least we can do is start banking some PTO to use for a well deserved vacation. 

It’s important to understand that even in a corporate-america position, your PTO is not given to you by the company because they think you’re so wonderful. For them, it’s calculated into your cost. They see it, as you should – as compensation. It’s apart of your overall package and should be counted as income, because it is. It’s never just “a perk” that you’re given, which is why it’s often accrued as opposed to built in. 

So if you apply the same thinking to your own business, you’ve got to earn that money while you’re working for your regular check. This means, playing Tetris with numbers. Sometimes the best solutions are the creative ones you need just until you find a solution to the larger issue. In this case, you’ll need to set up a structure that works for you until your rate is high enough that it’s no longer an imposition, but a welcomed line item in the budget. 

A couple options:

As a freelancer, there are two options I really like for building PTO which I’ve outlined below. While you certainly could use a money management system, an accountant or a really budget smart spouse, if you’re like me you might find one or both of the solutions below best for your practice.

Build it into your rate

You can choose to bill $29.00/hour but if you billed $30 and banked that last dollar, you’ll begin to accrue funds in a separate category. On 20 hours per week, over 50 weeks you’d have $1,000 in the bank waiting for you to use as a paycheck while you’re gone. That’s $500/week. If you’re doing the math with me you’d see there’s a discrepancy there. Your $29/hr 20 hour a week check should total $580, so for the PTO to match, you would need an additional $80 to make it work. You’re absolutely right. If you’re not spending on gas to commute to jobs, paying for parking etc… these numbers might work out in your favor considering the savings you’re finding. If they’re not, simply adjust the number you’re setting aside for the PTO or… check out the second option.

Often as freelancers who plan to work 30 hours/week we get an added job that goes over by a few hours. For the holidays I personally have no connection to, I’ll work and bank the extra cash. I take the conference from time to time just for some extra money to have on hand. In any case, you can establish rules for what to do when excess lands in your book. 

Using the example above, if you plan on working 20 hours per week at $30 and taking $1 from each hour towards PTO you can combine your savings with anything over 20 hours a week to grow the account faster. If you work 24 hours one week, you could bank an additional $116, making the total added to the PTO account $136 when combined with your savings. Also, you might have other savings happening concurrently. Your rule may be that when working “overtime’ you’ll bank 50% to savings, 50% to PTO or anything over 5 hours in addition to PTO. That would mean at 26 hours, you’d save $145 for whatever savings account you have with $49 going to PTO, which is almost 2.5x your regular rate. Fantastic! 

You can also just budget for it. If you have a system like mine, where I get a single paycheck every week regardless of how much or how little I work, you can monitor your profit/loss statement monthly to ensure that your weekly hour quotas are on track for the correct payouts. I find this much easier as I tend to work better with bills than forward saving. If I see that for the following month, I need to earn a thousand dollars extra to maintain my lifestyle – I just do. 

CD Ladders

While this one does require some investment up front, if you are someone who can manage money fairly well and do best when it’s out of sight this might be the best fit. For myself, I’ve found that CD ladders are best for when I’ve just done a large contract I wasn’t anticipating and I’m in a good place. You can read more about them here.

In the below figures:

  • Green = initial deposit
  • Yellow = growth
  • Orange = withdrawal amount

If CD ladders are your plan over five years you can achieve the following with an initial investment of $5000 into five individual CDs. At a 1% return, if you deposit $1000 into each and then replenish them in exactly 12 months, you’ll end your first year with $1001.00 but your fifth year and each after, you’ll have $1051. While this does require more investment upfront, over time you find that you can earn far more than what your time through the year allowed for. 

In the bottom half of the figure, you’ll see what would happen if you waited five years to begin your laddering. You would essentially have five CD’s all growing, then reinvest all five to start at a higher rate of earnings. As you can see in the diagram, you would take the withdrawal for PTO at a surplus. While this style isn’t for everyone, with enough patience and research into the right CD you’re working smarter not harder.  

Whatever your system, as an industry we know that taking time off is critical to long term success. As a freelancer, planning a better quality of life means taking even more control over your life, allowing you to focus on the things that truly matter. 

What’s your system? Let me know in the comments if you have one or which one you might plan on creating. 

2 thoughts on “How Do I Accrue PTO as a Freelancer?

  1. I had no idea PTO was even possible. This blog has completely changed my practice. Thank you so much! I’m looking forward to learning more about retirement, finances etc… Easy to feel lost when ITP’s don’t teach this.

    1. I couldn’t agree more! A big part of the reason why I wanted to write this blog is to provide students and working interpreters a space to find information that generally isn’t taught or shared in the community. A lack of these resources truly keeps us dependent on agencies! I hope you’ll subscribe to be notified when we post new content and get some extra articles to your email early as well!

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