[This article was written by Smith Willas.]
Budgets are an essential way to save and manage your money – whoever you are.
Some of the biggest financial minds in the world swear by their budgeting strategies, and even the wealthiest people around the globe use budgets to keep their wealth.
As a freelancer, you’re in a unique financial position. You don’t have the same consistent income to plan for and rely on each month. While you might earn a fortune one month from working with a great client, the next week, that person could be gone from your life forever, leaving you to search for your next big break.
While freelancing certainly has its benefits, the common issues that these non-traditional workers face when it comes to finance and budgeting can be overwhelming for a beginner. If you’re getting started with your new freelancer lifestyle, it’s important to make sure that you know how to budget safely and wisely. Here are some of our top tips to get you started.
1. Start by Keeping Track of Your Expenses
One of the first steps involved in creating any budget is figuring out how much you spend each month. You’re going to need different budgets for your business and personal life as a freelancer. This will involve thinking about how much you spend on business costs like marketing and supplies, and how much you spend on your regular expenses like food, rent, and utilities.
Tracking your expenses, both in your personal and professional life will give you a better insight into how much you’re really spending each week and month. Remember to keep track of the irregular expenses that you have to handle too – such as unexpected birthday parties in your personal life, and marketing campaigns in your professional world.
While you’re tracking your expenses, you’ll also be able to keep an eye on how much money you’re earning each month, both from your freelancer activities, and any grants or sources of support you may be eligible for.
2. Create a Plan for Your Personal Budget
Once you know what your incoming and outgoing costs are, you can begin to come up with a strategy on how to use your money each month. Obviously, some of the cash that you earn as a freelancer is going to need to go back into your business, but the rest will have to go towards you and your family. One good option is to try using a variation of the 50/30/20 rule. For instance, instead of spending 50% on your crucial expenses, 30% on your “wants” and 20% on your savings, try creating a 60/20/20 rule.
In this case, you would spend 60% on your essential personal expenses and business investments, 20% on your savings, and 20% on the things that you “want”. To begin with, it may be worth putting 30% towards your savings and only using 10% on yourself, so you have a good safety net to fall back on.
3. Be Careful with your Discretionary Spending
When you’re employed, and you have a fixed income to rely on every month, you know exactly how much you can afford to spend on luxuries. There’s no need to worry too much about how much you’re going to have next month and the month after that. However, if you’re a freelancer, you don’t have the same freedom. You’ll need to make sure that you’re constantly prepared in case you don’t earn enough to pay for all of your bills each month.
Rather than just spending all the money you have left after you’ve paid for your bills each month on whatever you like, you’ll need to put a decent chunk of your cash towards emergency savings. If you don’t have a lot of money left over after your bills are paid to load up your emergency savings account, then you’ll need to look for ways to keep costs low.
4. Cut Costs Wherever You Can
Even if you’re earning relatively large amounts of cash as a freelancer, you’ll need to be cautious with your expenses – just in case. This includes making sure that you’re spending your initial cash loan on the best deals for your company, as well as cutting costs in your personal life. From a business perspective, remember to:
- Shop around for the best deals on software, hardware, services, and support: Don’t skimp on important expenses, however – as this could cost you money in the long run
- Avoid using an office if you can: if it’s possible to work from home, you’ll save a lot of money on things like commuting and real-estate.
- Work with freelancers: If you need someone to help you out, look into collaborating with other freelancers to save some money on hiring a traditional employee
In your personal life, you can get into the habit of comparison shopping when paying for everything from food to insurance. You may also be able to cut costs by growing your own food in the garden, always shopping with a list, and planning your meals in advance.
5. Separate your Personal and Business Accounts
As a freelancer, you might think that you don’t need a business bank account – as you’re not launching an actual business. However, having separate business and personal accounts can make your life a lot easier. When you separate your business expenses from your personal expenses, you’re less likely to encounter problems that could leave you with issues when tax season arrives. Additionally, you can make sure that you’re always saving money back to put towards your tax bill at the end of the year.
If you’re not sure how you should deal with things like taxes and take-home pay as a freelancer, consider speaking to an accountant. A book-keeping professional will be able to offer advice on what you can do as a sole-trader to keep costs low. Often, managing your freelancer finances can be a lot simpler than you think. All you need to do is track your expenses and stay frugal.