How to Manage Your Budget when You are a Freelancer

With an unpredictable stream of income, should freelancers like you care to budget? The answer is YES. But how? Let’s find out.

Why Budgeting is Important for Freelancers

There are many perks to having a freelance job. First of all, you enjoy a flexible schedule. You can work virtually anywhere and get to work with different people from different parts of the world. There’s also an opportunity to make as much money as you can – as long as you work hard and find the right projects.

But speaking of money, there’s one hard truth about freelancing: you lack steady income. One month you’re making a few thousand dollars, the next you’re down to a couple of hundreds. Freelancing isn’t always fun and easy and if you’re just starting out, it may also be financially distressing. Think of it – no paychecks. No paid leaves. No HMO and other benefits. Not even a free coffee. You also pay for your tools and everything else.

The fact that money can be so unpredictable only means the more you need to budget. You want to make sure that you got all your bills covered and you have money left for food, your daily allowance, and of course – your savings.

How to Budget as a Freelancer

Unfortunately, the traditional way of budgeting may not work for you.

Follow these steps to manage your budget when you are a freelancer:

Track Your Income

Quick – how much money did you make for the previous month? If you have a straight answer to this, you’re doing a great job at managing your finances.

Otherwise, you should start tracking your cash flow as soon as you can.

Stop guessing and start recording all your projects and money paid to you. With tools like Excel, this task is going to be easy.

You want to know where the money is and where it ends up. When you know how much you are making, at least on average, you can easily adjust your spending and lifestyle to your means. At the same time, you will know whether you need to amp your game and increase your income goals.

Track Your Expenses

Just as you want to track your income, you also want to be aware of your expenses.

Track your expenses for about three months. Be sure to include not just your fixed expenses but also your variable expenses (items you can vary or cut if needed).

Make sure that your expenses do not exceed your income. Or else, you might find yourself indebted.

Since income is unpredictable in your freelancing career, there are times when a personal loan online is very helpful. Be sure to record all your personal loans, expenses, and collectibles so you don’t miss payments and due dates.

Aim for 50/30/20 Budgeting Approach

Experts recommend the 50/30/20 proportions when managing personal finances. In this approach, 50% of your income goes to your expenses, 30% to your flexible expenses, and 20% to your savings.

You might find it challenging to shoot for the 50/30/20 proportions. Don’t worry. The key is to take it slow. Assess your monthly expenses until you are able to adjust your spending. Make it a conscious effort to save money. Your future self will thank you.

Pay Attention to Your Spending Habits

If you list down your daily expenses at least for a month, you will have a better idea of your spending habits. Pay attention to discretionary spending (unnecessary expenses) and find ways to cut them down.

It doesn’t mean you have to deprive yourself. You just have to be cautious about where you spend your money on. There are ways to cut down your spending. These include grocery shopping once a week and bringing a list on your trip, getting a shared office space instead of renting an entire office for client meetings, and cooking your food.

Managing your finances should be one of your priorities as a freelancer. It isn’t that difficult to budget when you don’t have a steady stream of income. The key is to be mindful of your cash flow. Know how much money comes and where it goes. Be mindful of your expenses too. Don’t live beyond your means, save, and try to reduce your unnecessary expenses.