Making your living as a freelancer gives you a lot of freedom, but it can be hard knowing how to manage money as a freelancer. After being used to a regular paycheck, an unstable income can throw you for a loop. In 5 Best Budgeting Tips for Freelancers, I will walk you through the 5 tips that will help you keep track of your income.
You don’t need to let fear keep you from pursuing your freelance dreams. I’ve rounded up some of the best budget tips for freelancers to help you keep track of your income. Let’s Get Started!
Top 5 Budget Tips for Freelancers
1. Set Aside Half Your Income
Experienced freelancers say setting aside half your income every month is critical. You’ll need this for an emergency fund, to pay taxes and to pay unexpected business expenses.
Experts commonly cite the so-called 50-30-20 rule.
In an article in Forbes, independent contractor and entrepreneur Abdullahi Muhammed explains that this means living on 50% of your income.
“The other 50% should be divided between flexible expenses and savings at 30% and 20% respectively,” Muhamed writes. “If you can get close to these proportions and stay there, you will be able to meet long-term financial goals – savings for kids’ college and retirement, for example.”
Saving half your income may seem impossible when you’re starting out as a freelancer. If you’re struggling, start small. Saving anything will help you keep your budget from careening out of control.
2. Take Small Steps, But Take Them Now
You should start your financial planning when you start your business. Have a plan to cover your immediate and long-term goals before you start.
At its most basic level, budgeting for freelancers requires the following steps:
- Write down your immediate and long-term financial goals.
- Start saving what you can.
- Use a budgeting app or other simple tracking system.
Maybe you can’t even imagine setting aside half your income right now. Try setting aside 20% or 10%. Start building an emergency fund. Pay down your debt as quickly as possible to free up money for operating expenses and savings.
In an interview with NerdWallet, freelance writer Alysse Dalessandro described using simple steps to get her erratic budget under control.
“I try to be really conscious of where the money is, where it ends up and making sure that I’m putting money aside,” Dalessandro said. “There was a time I was paycheck to paycheck, and that’s freelance paycheck to paycheck, which is scarier.”
Dalessandro started small, setting aside some of her money every month and eventually sticking to the 50-30-20 routinely. She added another budgeting tip for freelancers who want to save for a special purchase:
“In 2016, she saved $1,522 for a trip to Italy using the 52-week challenge. Each week, she put money into a jar. The amount corresponded with the week, so she put $1 in during the first week, $2 during the second week, and so on until week 52. Every dollar came from her spending money.”
Ready to Escape Your Classroom?
3. Keep It Simple
One of the best budget tips for freelancers is to keep it simple.
Many people think they need an all-inclusive, complicated money management system when they go into business for themselves.
These can be expensive to buy and difficult to learn, but are they a necessary business expense? That may not be the case.
Financial experts recommend starting with a simple tracking system that’s easy to use because you’re more likely to stick with it.
Some freelancers use old-fashioned paper ledgers or day planners while others use budgeting apps like Mint, Mvelopes, YNAB (You Need a Budget) or Level Money.
In an interview on the NerdWallet blog, professional financial planner Robert Reed says he’s a fan of simple tracking systems and small steps.
“I’m a big believer in baby steps,” Reed says. “Starting off and setting up some complicated tracking system never works out.”
4. Adopt a Business Mindset
Many freelancers are creative and individualistic. They’re also uncomfortable with strict, regimented schedules and other hallmarks of a regular job. That mindset can help you focus on your passion, but it shouldn’t extend to budgeting for freelancers.
As a freelancer, you are the owner of your own business. You need to manage it like a business.
On the blog 99Designs, freelance graphic designer Tory Van Wey writes, “It’s a bold and respectable life decision to make your living from your art, but it’s not an excuse to shut your eyes and hope your finances sort themselves out. As a freelancer you are also a business owner, and you need to tend to every facet of your business to ensure that it’s a sustainable operation.”
You might wonder why backing up your work is a money-saving tip, but think about the times a network failure, power outage or dropped phone call has cost you the ability to earn a living.
As this article from Khan Academy points out, having a backup data plan is just as important as having an emergency fund:
“Speaking of emergencies, few things are worse than trying to meet a deadline, losing your work in the final hour and scrambling to make up for the lost time. Time is valuable, especially if you’re a freelancer, and using it to redo work means you might be missing out on the chance to land other paying gigs. So back up your data frequently using an external hard drive or a cloud-based service.”
It’s easy and inexpensive to back up your data. As a freelancer, you’re responsible for keeping track of all your work.
You Can Do This
If all this seems impossible right now, start where you can.
Whatever you do, don’t put it off. Budgeting for freelancers is harder than budgeting on a regular weekly or monthly income, but the payoff is greater personal freedom. Get your budget under control to experience real financial freedom once your business starts to take off. You’ll already have a system in place for managing all that new money you’ll be making.
“Keeping your finances healthy takes self-control, commitment and consistency,” Muhamed writes in the Forbes article. “If you use the strategies above, you have a much better chance of meeting your budget goals.”
Learning How to Manage Money as a Freelancer Can Set You Free
Financial concerns can keep a lot of people from pursuing their dreams as a business owner, freelancer, or independent contractor. It’s understandable that the idea of going from a predictable, regular income to an unpredictable one can be frightening at first. Learning good financial management can help you feel more confident about setting out on this path.
Something else that can set you free and help you feel more confident is taking a look at my #1 recommendation for escaping the classroom. It’s a great resource for learning how to promote yourself, your aspirations, and your special concerns.
I may benefit from a qualified purchase.