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Budgeting Tips for Freelancers (That Make Money Management Easy!)

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UPDATED
September 25, 2021

In a perfect world, clients would pay on time, paychecks would stay steady, and savings would just fall into place.

 

Unfortunately, this isn’t a reality for many freelancers who don’t receive employer benefits like a traditional 9-5 job, or have an income that constantly trickles in over time.

 

If you want to thrive and survive as a successful freelancer, staying on top of your finances is as important as using the skills for the job you are working.

 

Whether you’re a new freelancer or already making money in your field, here are some tips to help you oversee your financial obligations and create an effective plan to stay afloat and prosper financially.

 

 

Tips #1: Know Your Expenses and Income

 

First, make it a habit to track both your inflows and outflows.

 

First – document money that you have earned. Keep a record of invoices that you have issued to clients and how much income you’ve received per job.

 

Next – track your expenses!

 

It can sometimes be tricky to sit down and comb through all of your expenses amidst a busy schedule and client appointments, but you need to do it!

 

The key to ensuring that income exceeds your expenses is to monitor your costly spending and limit unnecessary purchases. To keep track of the money that you earn versus the money that you spend, record the history of expenses of your freelance work.

 

This includes:

 

  • Bills
  • Repairs
  • Materials
  • Equipment
  • Maintenance
  • And anything else!

 

It can be helpful to start a file for your purchase invoices and payment receipts – this will help you organize your information!

 

Recording your expenses and your income will become more natural over time. Soon enough, it’ll become second nature.

 

 

Tips #2: Separate professional & personal accounts

 

Keeping your professional and personal accounts separate is very helpful to organize your finances.

 

You’ll be able to easily track the financial health of your work and be more organized as you manage your business.

 

Here are some key ways to keep the professional finances separate:

 

1. Track Work Expenses

 

  • When you have a separate business account, you should only make transactions that are relevant for your business on it.
  • A common expense that you should keep track of with separate accounts is gas and mileage costs.
  • Charging work-related travel and gas expenses to a business account will save you time and energy having to distinguish it from your personal car and travel expenses later.

 

2. Make Taxes Easy Later

 

  • Separate records will also help you fill out your taxes.
  • As freelancers don’t pay taxes traditionally, having detailed records of your finances is crucial to paying the right self-employment taxes every quarter.
  • They can help you identify business expenses to deduct, saving you money in the long run.

 

3. Keep Business Processes Streamlined

 

  • Your account also functions as a solid list of records that cannot be debated or doubted if financial difficulties arise.
  • You can also use a business account to collect payments from your freelance clients and easily track your earnings.
  • Transfer your earnings into your personal account at regular intervals so that you can use your income.

 

 

Tips #3: Choose a Budgeting Strategy

 

Freelancers often deal with inconsistencies in income. By creating a helpful budget and sticking to it, you’ll ensure that your expenses don’t outweigh your income.

 

As you can’t fully predict how your jobs and costs will change from month to month, being cognizant of possible costs will help you stick with your budget.

 

Use these tips to help create a budget:

  • Base your idea of possible earnings on a monthly income basis. Keep in mind that one month of low business income does not mean that you won’t succeed.
  • Calculating the average monthly income will allow you to have a better idea of what and how to budget.

 

Next, choose a type of budgeting style that works best for you.

 

One effective method is the 50/30/20 rule, which helps you align your spending with your savings goals.

 

50/30/20 Rule

Visual courtesy of Mint.

 

When budgeting, record all business expense receipts and track your jobs for clients.

 

Estimating your taxes every quarter and sticking to your financial plan will help you to diligently track income and expenses throughout the year.

 

 

Tips #4: Remember to Pay Yourself

 

Many financial experts agree that paying yourself first is essential to your freelance business.

 

Ensuring that you get a cut of your earnings might sound easy, but it’s common for freelancers to find this to be more challenging than they anticipate.

 

In the business world, company owners that pay everyone before themselves are responsible and are accountable for other employees’ incomes. In freelancing, refusing to prioritize your income or even not recognizing your worth in pricing can bring severe financial complications and consequences.

 

Leveling up your money mindset by reading financial books and helpful resources can help you reduce financial stress.

 

Paying yourself first doesn’t mean letting other commitments and responsibilities slide. It’s an organizational technique that will make sure that your paycheck is correctly issued and stays in your pocket.

 

 

Tips #5: Rely on Automation

 

You can use automation to make your money work for you without consciously thinking about it. It can also help you stick to your budget because it allocates your funds to all the right places.

 

So – feel free to automate your savings and payments for expenses like bills or business costs.

 

You can also use this method for your personal finances like paying off debt or investing.

 

Setting up automatic payments for regular and recurring expenses will ensure that you will never miss a payment with your busy freelance schedule.

 

When you avoid late fees or remember to contribute to your own savings, you’ll have more money in your budget and be able to grow your income.

 

 

Tips #6: Save for Emergencies

 

As a freelancer, your income can fluctuate month to month, which makes having an emergency fund a serious priority.

 

An emergency fund, which can be used for any unexpected expenses that arise, can help you to be secure in times of stress. These situations can include medical bills, car repairs, or natural disaster relief. Smaller emergencies can include the loss of a major client or late payments from customers.

 

It’s recommended to have enough money saved to cover a 3-6 month period of expenses, regardless of your financial situation.

 

Once you have that saved up, you’ll be ready to deal with the unexpected.

 

Here’s more on why you absolutely need an emergency fund.

 

 

Tips #7: Plan for Retirement

 

Plan for retirement

It’s up to you to plan for your retirement.

 

As your own boss, it can be a bit tempting to forego a sustainable retirement plan. However, saving for retirement is beneficial for your future.

 

Luckily, freelancers have lots of retirement options. Contributing to an individual retirement account, also known as an IRA, a SEP IRA, or a solo 401(k) can ensure that you will be protected and supported when you feel you would like to retire.

 

Because you don’t have an employer that is nudging you to contribute to your retirement plan, you have to stay on top of it yourself and get into the habit of forward-thinking.

 

Using the right benefit plans, you can successfully save your hard-earned money and watch it grow for the future.

 

 

Tips #8: Account for Taxes

 

Taxes can be a hassle for anyone in the business world, and especially freelancers because their taxes can be much more complicated than traditional 9-5 workers.

 

Freelancers don’t have taxes withheld automatically from their income as traditional employees do. Instead, they have to make estimated quarterly tax payments.

 

As a freelancer, you’ll have to set aside your own earnings to make these tax payments.

 

One strategy to assure that you have money set aside to pay taxes is to make 2 separate savings accounts for your business.

 

One of these accounts can be used for depositing money you have received from freelancing services. The other account can be a percentage of your earnings to act as an estimated quarterly tax account. This will help you stay organized and prepared to pay your taxes.

 

 

Tips #9: Don’t Put Off Financial Upkeep

 

As a freelancer, you’re in charge of your financial priorities. Engage in financial upkeep regularly so that you have a system in place to help you succeed.

 

Some freelancers struggle with allocating income to pay off debt or business funding, and instead save their money where it is easily accessible for short-term use. Whether you have personal or business-related debt, you should have a plan to repay it.

 

Even though you may be worried about your future earnings, don’t let that overshadow paying off your debt on time. This can lead to big issues down the road for you, personally and professionally.

 

Paying off your debt will decrease pricey interest rate payments, raise your credit score, and save you money that you can turn around and invest in your business.

 

Wrap Up

 

As a freelancer, you may earn dramatically different amounts of income each month.

 

In response, budgeting your money in the present and for the future can make a world of difference for the longevity of your business and for your financial peace of mind.

 

To be a successful freelancer, make sure you’re aware of these realities!

 

An effective budget will help you prepare for costly taxes and expenses to keep your business afloat. And of course – don’t forget to build in plans for your personal savings and retirement.

 

By building good money habits, your inconsistent finances will balance out. You’ll then be able to enjoy all of the benefits that come with being a freelancer!

 

 

This post was written by Pia De Los Reyes

 

Pia De Los Reyes

Pia De Los Reyes is a writer and content marketing specialist. She has an M.A. in Communication and specializes in the personal finance, career, business, and lifestyle spaces.

 

When she’s not writing content online, she can be found reading poetry in the park or cooking a new recipe. Follow her on LinkedIn.
 

 

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