(This is not financial advice.)
In 2015 I left my full-time job to take a 1099 contract and become legally self-employed. I’d heard from colleagues at the same studio that paying taxes out of pocket had blindsided them their first years making significant income. Knowing that no employer was withholding a percentage of my paycheck, I didn’t want to put myself in a situation where I owed the IRS more than what was in my bank account.
So I opened the highest interest savings account that I could find, and began putting 30% of every paycheck directly into savings before touching a penny.
Whenever I get paid, I remind myself that the first 30% isn’t mine to spend, I put it away, and I forget about it!
I have yet to pay 30% in taxes, but I also know I won’t be caught off guard come tax season. The extra savings are a cushion for any financial emergency that may arise. And as the account grows, the interest is significant.
I’m sure there are better strategies out there. The important thing is to plan ahead. Expect to pay the IRS while all your friends are getting refunds. And keep a stash that may just bail you out if your computer dies or you need a car repair.