Budgeting is hard enough for regular employees with a set salary, so no wonder it’s a big challenge for freelancers with an irregular income. If you don’t manage your money carefully, it can feel like your earnings just disappear before you have a chance to pay the bills.
Fortunately, with the same dedication and planning you apply to your freelancing work, it is possible to thrive with an unsteady income.
You will need some idea of what you’ll make in the next month or two to create a solid budget, so try to predict the lowest amount of money you’re likely to make and go from there. If you’ve been freelancing for over a year, you can use the months in which you earned less money to create your expected baseline income. If it’s your first year, you may have to guess based on the projects you’ve been paid for so far. The important thing is to stick to the low end of your estimate. If you budget for a smaller amount and you make more money than expected, you’ve earned a bonus. If you budget for a larger amount and don’t make it, you might have just missed a utility bill payment.
It can be easier to keep track of your budget if you use a separate checking or savings account for your freelancing earnings. The money you keep in that account can be used to continue improving your freelancing business and pay taxes when April comes around. You can even have a third account to use just for taxes. If you have a large pool of cash sitting in one account, you’ll be more tempted to splurge, so get into the habit of keeping your freelancing profits separate from your personal money.
If you feel that watching your budget while freelancing would be easier if you were paid like a normal employee, pay yourself that way. Pick a set amount using your baseline income estimate and pay yourself that amount every two weeks. You can adjust this salary based on how your income changes, but keep it lower than what you actually earn so you can keep some money in the freelancing account. This will make it easier to treat your earnings like a paycheck and plan accordingly.
Having a credit card to use just for expenses related to your freelancing career –such as new software, computer parts, continuing education classes, or Internet bills–can help you better monitor your budget. Following this strategy will also make it easier to track down your tax-deductable expenses in April. If you feel you’ll be tempted to use this credit card while out on the town, leave it in your home office.
Having tough but realistic goals is a great way to stay motivated. Set a goal for how much you’d like to make from projects each month and work on improving yourself as a freelancer a little more each day so you can achieve it. If you prefer, you can also have quarterly or yearly goals. Any goal that keeps you applying for projects, updating your marketing plans, learning new skills, and networking will be helpful. Again, you’ll be using a conservative estimate for budgeting, so extra money will act as a helpful cushion.
Have you ever heard the expression “don’t count your chickens before they hatch?” This is a good attitude to have in the world of freelancing. Sometimes, clients will take a few weeks or even months to pay you. Don’t rely on money you’ve made from a project until the client’s check clears. Not only will this help you budget conservatively, it will also keep you motivated to follow up with the client about payment instead of passively waiting for the money to come in.
In short, if you plan your income, pay yourself a salary, use a separate bank account and credit card for your freelancing work, consistenly strive to meet professional goals, and treat accounts receivable responsibly, you’ll be able to manage your income like your inner CEO always knew you could.
Filed Your Tax Return? – What to do if you Forgot Something
Does Being Denied Credit Hurt Your Credit Score?
Tips to Improve your Brand Strength
Building Better Business and Customer Service in 2021
What Your Tax Accountant Needs to Prepare Your Income Tax Return
Small Business Loans for Women
Watch out for Lenders who ask for a Fee Upfront
Stay Alert and Recognize Signs that your Business may be in Trouble