Budgeting for freelancers may be a difficult task for many since it's hard to budget a variable income. Due to the fact that most companies pay once a month, many freelancers have a hard time making it from month to month. However, with careful budgeting and planning, freelancers can support their families.
Budget Based on Previous Earnings
Despite the obstacles freelancers face, it's important to learn how to budget based on what is available, rather than what is anticipated. This method helps freelancers get out of the habit of spending money before its received and helps them set and track earnings goals.
By budgeting based the money earned in the previous month, freelancers avoid spending money not already in their accounts. Working with what's in the bank makes it easier to pay the bills. If there's not enough, freelancers can then detect a new goal for the next month.
Save for Large Expenses
Make sure to set aside money for big expenses. There's no guarantee associated with freelance income, so the more advanced notice of an expense, the better. Saving for large expenses with smaller chunks of money (for a longer period of time) will help ensure there's less impact on the bank account.
Always Search for More Work
Continue to look for gigs and ways to increase income. While no one can add hours to the day, find ways to maximize the time spent working to earn more in a shorter period of time. By looking for other work, freelances may find a higher paying job (that means they can work less and make the same amount of money). Freelancers should never put all their eggs in one basket, and they should always keep their eye out for more lucrative work.
Save in Multiple Places
Save money in more than one place. Use different savings accounts for different expenses. A business account should be used to track business expenses. Keep the savings for taxes separate from all other savings for large personal expenses, vacations or emergencies. This way, each freelance payment can be disbursed across the accounts according to what is needed. By using several accounts, no single account gathers a large balance and becomes tempting to tap into. Also, consider saving for days off and retirement. Place the savings with different banks, or wherever the highest interest rates are available.
If any bonuses are attached to pay, don't blow it all. It's unexpected money, yes, but as such, it can help savings goals and ensure freelancers can afford to take a day off from time to time. Decide where the portion of the bonus should go--to the bills, to taxes, to retirement, to vacation fund, etc.--based on your financial situation at the time the bonus is received.
It may take a few months for freelancers to switch gears from budgeting based on what is expected versus what is on hand. However, once the switch is made, many freelancers will see a significant increase in their ability to manage their money. They will also be prepared for the unexpected.