Budgeting for Freelancers

Grass is always greener on the other side. While you are in a corporate job, the life of a freelancer may make you green with jealousy. After all, there is the talk of freelancers being masters of their own time, work, clients and money. They can work in their pajamas, and can even get to choose which clients they can work with. Sounds like a dream, right?

The reality is very different. Ask and freelancer about their financial situation and most of them will nod sadly to tell you that all is not well. There are frequently months where there is no income, and there are months where there is just an exhausting amount of work to do. This is the feast and famine cycle which many freelancers face.

And here is the problem with this feast and famine cycle. Let’s say that a freelancer is new to the business. He starts pitching and after a few weeks or months he gets a couple of clients. These are one-off gigs and are over soon. That means he needs to look for new clients again. In the beginning, he still has some capital to get him through the lean months, but when this feast and famine cycle keeps repeating, not only does he depletes his savings, but also his will to save.

When he does not have work, he keeps dreaming, thinking and planning to get gigs. And when work comes on his way and earns his pay, he spends it almost completely. This is because after periods of no work, he needs to give himself psychological satisfaction by spending. Due to this, freelancers find it harder to save up.

Everyone needs to budget. Same is with freelancers. However, for them budgeting is doubly hard due to irregular paychecks. To help you budget as a freelancer, here are some tips.

1. Track the cash flow: When you are in a corporate job, you know exactly how much you’ll be getting and when you’ll be getting it. In freelancing, how much you make varies from one month to another and for some, payments are delayed frequently. For them, it is more of a guessing game. However, you can turn around the tables by tracking the money coming in from each of your transactions. Track things like the assignment itself, the date your client is invoiced, and when the invoice was paid. When you do this, you won’t lose money. Also, use a planner for taking care of your business and personal expenses.

2. Set your financial priorities: For best results, use the 50/30/20 budget to allocate your income, even if it is irregular. According to this, you give 50% of your income on needs, 30% on your wants, and 20% on your investments and savings.

3. Keep it simple: Don’t just start off big only to abandon your plan. Start small. Take baby steps when adopting any plan.

Follow these three tips, and you’ll have no problem in managing your money even as a freelancer.