You often see tips and tricks to succeed in budgeting, but it’s never truly relevant to you and your situation. Freelancers are a unique breed that makes up 36% of our workforce. Budgeting can be difficult, but even more so when your pay is different every month. One month can be the best month ever, making more money than you could possibly make in a 9-5-desk job. But the next month you could come up dry with no projects or clients in sight. It’s a balancing act and takes years to master.
It can be a lucrative field, depending on the amount of projects you have lined up. However, understanding how to manage your finances on the roller coaster called monthly income is not easy. You’ve taken online courses to track down the best clients and how to perfect the service you are offering, but no one taught you proper personal finance.
Understanding how much you can realistically save and finding the right budget methods that works can take time and patience. But if you have bills breathing down your neck and client deadlines approaching, that pressure can make you put planning on the side.
If you take the time to follow these steps you will be put in a much healthier financial situation. It could lead to you being in the position to choose your clients and only work on projects you truly believe in.
Track Monthly Expenses
The first step is to track your finances. It’s an obvious step, but necessary. You need to understand how much you spend per month so you know how much you need to budget for going forward.
Break down your finances into categories to see where you spend the most and find ways you can cut some of that out. The freelancer life is one big ball of unpredictability. It’s about as stable as your work hours.
What helps is following the 50/30/20 rule. 50% of your monthly income is dedicated to your living expenses. Learn to cut this down so your living expenses can be covered month to month even when your income fluctuates. 30% is for spending. Whether this includes food, grabbing a drink with friends or whatever. 20% is dedicated to saving, my favorite.
This is most likely obvious, but don’t forget to keep your business separate from your personal finances. It’s important to separate these to keep your life organized. Pay yourself each month, but keep a little bit to reinvest back into your business to cover those slow months or maybe seminars to learn a new skill.
Know Pay Periods
Now that you know your monthly expenses, you need to figure out when you normally get paid. When you work with clients, they typically specify their pay periods in the contract.
One client may pay every week, while others may only pay once after 60 days. It’s all over the place, but something you 100% need to track and stay on top of. There should be no surprises.
Having this information on hand helps you plan out your months and budget accordingly.
Know How Long Income Needs to Last
I’ve mentioned your pay can fluctuate every single month. But when you get big payday, you’re tempted to blow it all right away, right? It’s important to understand how much and how long you will need that money to last.
You may have a big bill coming up in a week. Make sure that money is there by the time you need it. It’s a great feeling to have some money in your pocket and maybe treat yourself to something nice. But be responsible and know how much you can spend and how long you need this chunk of cash to last
Stabilize Your Income
You’re probably laughing at the title of this one. Stabilize something that is known to be volatile and unpredictable. But there are steps you can take to stabilize it a bit.
Raising your rates may be something you’ve been putting off to avoid those awkward conversations with clients. Listing out why you deserve to charge more and taking the risk they may take their work elsewhere.
Understand how much you should really be charging based on your experience and skills offered. Tell your clients your prices will increase the following month. You will most likely weed out some of the weaker clients and keep the real gems. They’re the ones who see your true value and are the clients you want.
Invoicing regularly is vital to keep your business afloat. You’ve probably noticed a business may be the first to tell you when you’re missing something or if they want a change to their project. But you’ll find them to often drag their feet when it comes to your payment. Don’t forget to stay on top of invoicing and make it a regular habit to reach out if payments are late.
I’ve even found it helpful to reach out a few weeks before to verify your payment is still on track to be processed and reiterate the job you did so well. They may even be reminded and ask to bring you on again for more work. You never know.
Establishing revenue streams is an interesting one. You have your main source of income working as a freelancer. Those projects for clients take up most of your time and energy and you’re able to make a living off it. But the instability can be an issue at times. Finding new opportunities to make money can be a game changer.
Finding opportunities to get paid through royalties, selling some products on the side or uploading pictures or artwork to a stock photo site can bring in some extra passive income.
Finally, the last suggestion is to keep marketing. Even if you’re having the best few months ever and a long list of clients. Don’t slack off on the marketing. You never know if it will dry up or maybe it could even attract a dream client. Just don’t stop and keep up that hustle.
Pay Yourself (And Taxes) First
If you’ve been following these steps you should know how much you need to survive every month and how long until your next pay day. Use this insight to pay yourself first.
You should know how much you would have left over as “free money” that can be spent elsewhere. Put a percentage of this money into savings and perhaps some to pay off debt or invest for retirement.
The most important one to put aside is money for your taxes. Paying quarterly is normally required and should never be ignored. The IRS will find you.
So if you’re able to, follow the 50/30/20 rule. That will leave you with 20% of your monthly income to pay yourself with and be put into a savings account or invested.
Final Thoughts
Freelancing an amazing career. It offers flexible hours, no boss and you get to work on something you’re passionate about. The pay can be unstable, but if you work hard you can ways to make that paycheck more regular and know how to stretch it between bill periods.
