When working as a freelancer, fluctuations to your income can be as nerve-wracking and unpredictable as a roller coaster ride. 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.
And that makes sticking to a budget 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 it makes better sense to raise rates. Here's how to start and manage a freelancing budget that ensures you'll always have money.
Incomes vary – so develop your budget based on your average income. Determine this amount by calculating your monthly income over the last two years, then divide that by 24. Next, list your monthly costs, including fixed and variable expenses. Fixed costs include your mortgage or rent, as well as insurance payments (health, dental, vehicle, and home/rental).
You might also have other fixed costs like a vehicle or boat loan, school tuition, gym membership, student loans, and services (gardener, swimming pool maintenance, and/or house cleaning). Keep track of these ongoing expenses in AND CO from Fiverr, a free tool designed to help you manage your time (and money) so you can focus on building your business.
Download the app here.
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 illustrate why you need to be prudent about how you spend money.
Reviewing the previous year's worth of expenses will likely reveal surprising habits 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 client loss.
Technology is another way to educate yourself about freelance budgeting and making wiser financial decisions. For example, Fundbox is 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 also made just for freelancers—the app version even provides automatic mileage tracking!
Personal and professional expenses are often hard to separate. Luckily, there is a ton of financial software and resources out there to help you visualize, organize, and account for both types of expenses. You'll gain a greater understanding of how to develop budgets for your business and personal life. Learn more about budgeting software (and gain access to special promotions) on Elevate from Fiverr.
Develop financial goals that address short-term and long-term objectives. These will determine the budget for large purchases such as an emergency fund, savings, college for kids, or retirement. In the meantime, stay on top of the basics, watch what you spend, and reduce unneeded expenses.
Clarity Money is one financial app that can recommend financial goals to set and how to achieve them. 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.
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 or the Small Business Administration.
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 sound advice on balancing your freelance income and expenses – with wealth creation to weather all economic cycles.
Remember, all this effort is worth it because it ultimately means more money in your pocket. Want to take control of your finances today? Download the free AND CO app to keep track of your expenses, timesheets, invoices and more—all in one spot.
Have you mastered the art of budgeting as a freelancer? What are your tips? Tell us in the comments below!
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