There are a lot of fantastic perks of being a freelancer. You no longer have to deal with a horrible boss, you can create a schedule that works for you, and you can work from anywhere in the world (yes, even the beach or a cozy ski resort).
But one of the main challenges is that you no longer have a steady paycheck, which means your income can be unpredictable. Some months are bound to be more profitable than others, so it’s critical to budget responsibly. (After all, you don’t want to find yourself stranded on your workcation because plane tickets are sky high.)
4 Budgeting Tips to Help you Manage your Money
- Estimate your total income and expenses.
- Set aside money for your taxes.
- Create an emergency fund.
- Choose a budget and stick to it.
Be scrupulous about tracking your income and business expenses right when you get paid or make a payment. It will be easier to stay organized if you have a business credit card, open a business bank account, and pay yourself by transferring money from your business account to your personal account.
Hire a financial advisor or find a bookkeeping strategy that works for you and stick with it – that way you’ll always know the average amount you will make each month and at the end of the year. Don’t get stuck shuffling through a huge stack of receipts, invoices, and timesheets. Use a free tool like AND CO From Fiverr regularly to save you time and aggravation and make it easier to forecast your income.
The process of paying your taxes as a freelancer is different than paying them as a full-time employee. When you work full-time, your taxes are taken out of each paycheck so you don’t have to think about it until April. Now your taxes are no longer automatically withheld and you have to pay annual and quarterly taxes. It can be tricky to calculate your quarterly taxes – and you’re dealing with the government, so you need to get it right. An accountant or tax preparer can help you follow all of the rules and regulations.
Your quarterly taxes will change, but make sure you set aside more than what you paid for the previous quarter so you factor it into your budget. Your accountant may also be able to tell you your estimated quarterly taxes for the entire year based on your average income and expenses.
Would you have enough money to cover an expensive medical bill that you didn’t anticipate? In a recent Bankrate survey, 34% of the participants said they’d had an unexpected expense in the past year, but only 39% of participants said they’d be able to cover a $1,000 bill using the money in their savings account. Most experts recommend that you have three to six months of expenses saved up in an emergency fund that you don’t use unless you absolutely need it. If you can afford it, grow your emergency fund by factoring it into your monthly budget.
Now that you have more clarity about your net income, it’s time to set up your budget. Consider using the 50/20/30 guideline to create your budget each month. Spend 50% of your money on essential costs such as rent, mortgage payments, utilities, groceries, gas, or public transportation. Use 20% for payments or contributions that help you reach your financial goals like paying your student loans and credit card bills, adding to your emergency fund, saving for retirement, and accomplishing big goals like buying a car or house. Allocate the last 30% for fun things like travel, shopping, and going out to eat.
What are your best budgeting tips? Tell us in the comments below!