Working as a freelancer brings a huge amount of freedom and with that, a shift in the ways that you plan your work. This flexibility is refreshing, especially if you’ve come from a corporate background and haven’t been able to manage your own schedule. Freelancing does, however, mean that all business responsibilities fall onto you, including budgeting.
Fluctuations to your income are nerve-wracking and, unfortunately, inevitable. Your regular client work will generally guide the amount you have for spending each month, but there’s no guarantee that money will remain steady throughout the year. Sticking to a budget can quite challenging but your changing revenue is why you need to create a budget in the first place. A budget shapes how you will adjust your financial strategy – including when to pursue more clients and when to raise rates.
Here’s our guide on how to start and manage a freelancing budget that works 365 days a year:
1. Compile average income and expenses
Your income will vary so you’ll need to work out your budget based on your average income. The simplest way to determine this is by calculating your monthly income over the last two years, then divide that by 24.
Next, make a list of your monthly costs, including fixed and variable expenses. Fixed costs include your mortgage or rent, as well as insurance, utilities, health, dental, vehicle, phone and internet. You might also have other fixed costs like gym membership and student loans. Keep track of all of these ongoing expenses. A perfect tool for this is AND CO from Fiverr, it’s completely free and has been designed to help you manage your time (and money) so you can focus on building your business.
Establish a fixed amount that is reasonable to spend on groceries, utilities, gas, meals, personal grooming, travel, and entertainment. Don’t forget to include other applicable costs like vehicle registration, school supplies, clothing, tax payments/estimated tax, home/vehicle repairs, savings, retirement, etc.
Budgeting will show you why you need to be conscious about how you spend money. Reviewing the previous year’s worth of expenses will likely reveal surprising habits that you now have the power to change. You’ll then be able to save money for periods when income is thin or there is an unexpected loss of a client.
2. Make use of software designed to improve financial IQ and decisions
Technology is arguably the easiest way to educate yourself about freelance budgeting and making wiser financial decisions. Fundbox is a great example of this. It’s been designed to simplify and improve the way that small businesses and freelancers pay and are paid. It provides revolving lines of credit for freelancers and SBOs to use. Quickbooks Self-Employed is another amazing tool that has been made just for freelancers—the app version even provides automatic mileage tracking.
Some people find it hard to separate personal and professional expenses when they go freelance. Luckily, there are plenty of financial software and resources out there to help you visualise, organise, and account for both types of expenses so you’ll be able to gain a greater understanding of how to develop budgets for your business and personal life.
3. Establish and achieve financial goals
This can sound like a huge challenge but if you’re already working on points 1 and 2 then this will come naturally. You’ll want to be developing financial goals that address both short-term and long-term objectives. These will determine the budget for large purchases such as housing as well as savings and retirement. In the meantime, stay on top of the basics, be aware of what you spend and reduce unneeded expenses wherever you can.
One financial app that can recommend financial goals to set and how to achieve them is Clarity Money. By linking all your financial accounts, the app leverages artificial intelligence to learn about your spending habits and identify areas for improvement. For example, it may suggest you cancel subscriptions that are not necessary and suggest applying those savings toward one of your financial goals. You can adjust your money mindset by using other financial-planning apps, like those on NerdWallet‘s list of the top budget and personal finance apps for 2018.
4. Get expert advice
Although software and apps can be hugely helpful, consider seeking advice from finance professionals who can paint a more comprehensive budgetary picture. Advice can come from many places, including organizations like the Freelancer’s Union. One of our personal favourite places to get expert advice is from The Young Money Blog. These resources provide information that addresses tax changes and other financial issues that affect how you prepare and manage a budget. You may also want to seek out a professional bookkeeper, accountant, and/or financial advisor. They have the licenses to offer reliable advice on balancing your freelance income and expenses.
Every step you take towards putting together a budget for your freelance business is a step in the right direction. If you’re tracking what you spend whilst working on achieving your financial goals, seeking out expert advice and educating yourself then you are ticking all the boxes.