How To Budget As A Freelancer

How To Budget As A FreelancerAs a freelancer, I have to find a way to budget my income with different amounts of money. I never make the same amount, and as a freelancer income isn’t always stable.

You might have a fantastic one month and then the very next month have an absolutely horrible one. You just never know what will happen.

What about my experience? Some months I don’t make any income for a few weeks, and then it all comes in at the end of the month. Other times, all of my income comes in at one week and the other 3 weeks almost feel like a complete loss. This is usually because work can vary from week to week, and also because sometimes clients have a 45 day or 60 day wait before they can pay me for my services. As a freelancer, weeks where I don’t get paid much almost feel like everything is just going downhill, even though I know it’s not. It’s hard to get out of that mindset.

Here are my tips for budgeting as a freelancer:

Have a budget!

This should be your very first step. You need to create a budget with your actual expenses so that you have an idea of how much income you need to bring in.

The main way I recommend freelancers to make a budget is to base it off your lowest monthly income. So, if a “bad” month for you is $3,000, then try to make your budget at $3,000 or lower.

However, this is all up to you. If you have an emergency fund (as discussed below), then you may be able to base your budget off of an average instead. For me, I’d rather be more comfortable and base it off a bad month because you never know how long a “bad month” will be. It could just be one month, but what if it happened for 6 months?

Save for taxes.

Saving the correct amount for taxes can be difficult because as a freelancer it is unlikely that you will know the exact dollar figure that you will owe at the end of the year. However, there are ways to help you estimate your taxes.

Two different ways include saving 25% to 35% (or whatever percent you think is realistic for you and your business) of how much you make each month. Or, you can try to estimate how much you will make throughout the whole year and save the amount of taxes that you think you will owe each month.

Have an emergency fund.

If you are a freelancer, I really hope you have an emergency fund. I know that some people are forced into the freelancing lifestyle suddenly for different reasons, but I think that you should work towards having a well-funded emergency fund no matter what.

Having an emergency fund is a good idea for many reasons. If you have a bad month, an emergency fund can help you through that so that you don’t feel like it’s the end of the world. An emergency fund can also help you get through a month with higher expenses, such as due to car or home repairs.

Read How Much Do I Need in My Emergency Fund for more information.

Keep your business and personal finances separate.

Keeping your finances separate is something that you definitely need to do. It’s easier just to keep everything separate so that you can keep track of business and personal financial goals, and it also makes it easier when it comes around to tax time.

You don’t want to have to weed through hundreds or thousands of transactions when it’s tax time to try to figure out if it was a business or personal expense.

Don’t forget to save for retirement.

One thing that some freelancers forget to do is to save for retirement. You should have a line item in your budget for retirement so that you are “paying yourself” in your budget as well.

How do you budget as a freelancer?


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How To Budget As A Freelancer — 25 Comments

  1. I save through having an efund. It really helpful for me because I don’t know when I will be having such difficulties in life again. It is important to be prepared so that I don’t need to have debt.

  2. That’s a great idea to budget based off the income of the typical ‘bad’ months. So in essence, you won’t ever need to dip into your emergency fund if you have a ‘bad’ month. Just don’t have any really bad months. 🙂

  3. I would do the same base it off my lowest monthly income as well. I often have people ask me how to budget when they get paid at random times and that is what I would suggest. You need to come up with a figure so if you know you made $3000 in Jan and $6000 a month in Feb, Mar, Apr, May,then I’d go with the lowest but I like to be safe. Some people like to do average as well. Great post

  4. Id love to freelance as a writer and earn a full time wage but I don’t think I could cope with not knowing what my pay would be, even with a budget. It sounds flexible and great fun working for yourself and being able to work from home. Well done for making it as a freelancer and making a living from it.

    • Yes, there are positives of being a freelancer/writer, but there are also negatives. The big negative is definitely the unstable income. You just never know what may happen!

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  6. Great tips! Keeping business and personal expenses separate is a biggie for us. We start a new folder for both at the beginning of the year and then we file things into the folders as the year goes along.

  7. We use a zero-sum budget which means we “spend” all of our income on paper at the beginning of the month.

    To keep things simple, all of my earnings go into my business account and I just pay myself a salary on the first of every month.

  8. Do not forget to include the cost of general liability and professional liability insurance, which are costing me a total of more than $2,500 a year. Your home or tenant’s insurance will not pay to defend you or settle successful claims if you are ever sued for causing a personal injury while on assignment, for libel or defamation, or for professional negligence if you offer advice (for example). In addition, you could void your fire, theft and other coverage on your home or belongings if you fail to inform your insurer that you are operating a business out of your home or apartment. If you have a mortgage you will likely be required to have home insurance. The cost of insurance, plus taxes and social security contributions (Canada Pension Plan in my country, at a combined rate of 9.95 per cent as an employer [of yourself] and as a future recipient of benefits) will discourage many from dabbling in freelance writing.

  9. In the beginning, when I was getting used to my income I figured out what my lowest month had been and made a budget to that. Now my income is a lot more I don’t really worry about it. My spending/expenses hasn’t changed too much 🙂 It can be a bit tricky and stressful. Generally I have ultra busy weeks and then quiet weeks and it’s hard not to get worried about the quiet weeks even though the month always turns out fine.

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  11. Thank you so much for this article. I’m bookmarking it. Right now, I am saving 20% of all of my projects for taxes, but I think I am going to up it for 25%. I also take 10% and put it in to an emergency savings and another 5% for expenses. The rest is used as regular income. I have been paying myself a salary every two weeks this way.

  12. My husband’s income is variable and he had a few months where he didn’t even meet the minimum we had planned for. That was scary! Out came the Emergency fund to the rescue! Things seem to be back on track and we will grow the efund back up again.

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