Freelancing comes with many benefits, such as schedule flexibility and control over your workload. However, it also comes with challenges, such as learning how to manage your finances despite uneven monthly earnings. You may know how to write a resume that helps you land your monthly jobs, but do you know how to set a budget?
Do not allow your promising freelance career to come to an end because of mismanaged money.
Do not allow your promising freelance career to come to an end because of mismanaged money. Take a look at our 10 tips to learn how to develop your budgeting skills. Follow the advice from freelancers like yourself to learn the best ways to manage your finances and maintain this exciting type of career.
10 Best Budgeting Tips From 3 Freelancers
Establishing Your Budget
1. Tally your expenses
“You have to reverse your steps when budgeting as a freelancer,” reports Chris Karver, an experienced freelance carpenter. “Instead of knowing your income and spending accordingly, know your expenses and earn accordingly.”
Karver believes the first step to learning how to set a budget is to add up every monthly expenditure. “Create one list that details your necessary costs, such as your mortgage and groceries,” he says, “and another that includes all of your luxuries, such as coffee runs and dinner outings.”
2. Don’t forget about taxes
You tallied all of your expenses — or did you? “I thought I was doing great during my first year as a freelancer,” Karver remembers. “Then tax season came around and I received an unpleasant surprise.” Karver, like many other freelancers, made a crucial mistake: He forgot about taxes.
Know how to set a budget that takes into account the taxes you owe as a self-employed individual. Once you get an idea of how much of your income to put aside, include this estimation in your list of necessary costs.
3. Know your minimum target
“Sometimes, the money just doesn’t come in easily,” Karver notes. “When my earnings are looking low for the month, it’s nice to know my minimum target so I do not panic.”
“When my earnings are looking low for the month, it’s nice to know my minimum target so I do not panic.”
Your minimum target is the lowest monthly income you need to survive. In other words, it is just enough to pay for your essentials, such as housing, food, and transportation. Bring out your list of necessary expenses to define this number.
4. Think about the extras
“I survived, but I could not stay afloat financially for long by only earning my bottom target every month,” recalls Karver. “Keep that number in the back of your mind, but think about your financial goals to understand how to set a budget that meets your needs.”
You may want to pay down debt, pad your emergency funds, or invest. Perhaps you are saving for your children’s education or your retirement. Know what you want to put towards these funds every month.
5. Set your budget
Determine how much you need to earn to pay for your expenses while contributing to your financial goals. “Be realistic about your earnings,” suggests freelance writer Kim Thomas. “When I started budgeting, my goals concerning my income were too high. I found myself scrambling at the end of every month.”
“Be realistic about your earnings.”
Once you have your target, use the 50-20-30 rule or another plan. “Remember to prioritize,” advises Thomas. “Make sure you cover your essential costs and financial goals first. Then give yourself your ‘fun’ money.”
Sticking to Your Budget
6. “Fix” your spending
It is difficult to know how to set a budget when you have an irregular income. “My earnings fluctuate a lot every month,” says Thomas. “Because I do not have a fixed income, I try to have ‘fixed’ outflow.”
What does this mean? “Regulate your spending,” urges Thomas. “Develop a grocery budget and stick to it. If you allocate $250 for luxury expenditure each month, do not spend $275.” Following this practice helps you know your targets and stay in control of your plan.
7. Use separate bank accounts
You know to divide your income among your necessary costs, luxury expenditures, and financial goals, but how do you do that? “I knew how to set a budget, but it seemed too complicated to follow it,” states Thomas. “Then I discovered the simplicity of having separate bank accounts.”
“I knew how to set a budget, but it seemed too complicated to follow it,” states Thomas. “Then I discovered the simplicity of having separate bank accounts.”
Having different accounts can help you track your income and divide your earnings with accuracy. Thomas recommends receiving job payments to a business checking account and then transferring to three separate accounts to address each specific aspect of your budget.
8. Give yourself an allowance
“You have to be the kid and the parent all at once,” jokes Richard O’Carroll, a freelance marketing consultant and accountant. He suggests breaking up your monthly luxury expense budget into weekly allowances, especially if you are new to budgeting. “It may sound silly, but if you are not strict with your ‘fun’ spending starting out, you may find yourself wasting your monthly allowance in a single week,” O’Carroll cautions.
9. Record it all
“I know it is most people’s least favorite step,” says O’Carroll, “but recording your money’s movement is a crucial part of understanding how to set a budget.” Track both your incoming and outgoing money. Include everything from your monthly mortgage payment to your daily Starbucks stop.
Recording your money’s movement is a crucial part of understanding how to set a budget.
“This is tedious at first, but once I made it a habit, it was easy and useful,” recounts O’Carroll. Revisit your records every few months to adjust your income target, cut unnecessary outlay, and tweak your plan in other ways.
10. Make it fun
Find ways to make handling your finances more interesting or even enjoyable. “I have more fun working with my money as a freelancer than I did when I was on a fixed income,” shares O’Carroll. “When you earn more than you expected, you can save more or pad your spending accounts.”
Track your money with fun budgeting apps, or use whatever tools with which you are most comfortable. Set up rewards for meeting specific financial goals or treat yourself to occasional ‘splurge’ purchases after exceeding income targets.
When Was the Last Time You Updated Your Resume?
With these steps, you can better understand how to set a budget and stick to it. Keep in mind that as a freelancer, it is important to explore new opportunities that may bring you more income. Is your resume ready to land you your next job? Whether you are updating your document or completely reconstructing it, use our professional resume builder to create a stunning document that can help you earn the interest of potential clients.