How to Budget Freelance Income

Hello to everyone who joined The Simple Freelancer last week! I’ll be updating everyone on The Pitch Place as things move along, but I wanted to say how exciting last week was. I’m so happy there’s so much interest in this idea, and I can’t wait to see what it does to streamline the pitching process for freelancers and editors. My dream is to build a place that brings editors and freelancers together, so there is *a lot* to come! And now, our regularly scheduled program…

Freelancing is full of ups and downs. Some months, my income has exceeded my expectations and others, I’ve stared at my bank account in dismay. To guard against these fluctuations, I’ve learned to budget with an irregular income and am offering some tips on how to do it.

Freelancing income can fluctuate wildly from month to month. If you have a few anchor clients or can count on regular work, then budgeting may not be too difficult, but if you have a large influx of work one month and crickets the next, then budgeting can be tough.

These tips can help budget an irregular income and lead to more financial stability.

If you’re not budgeting your money, chances are, you’re wondering where it all goes. I’ve written out a budget on paper every single month since 2014, and the impact that it’s had on our finances is immeasurable.

A budget can sound intimidating and restrictive, but it’s actually the opposite. A budget allows you to tell your money where to go, and then allows you to track it to make sure you’re using it in the best way possible. Writing out a budget (or using an app) is essential for managing your finances as a freelancer.

This is our biggest budgeting secret. When my husband, Ryan, and I first started budgeting, we were budgeting every two weeks when our paychecks came in, and we always felt like we were a step behind. That’s when Ryan had a brilliant idea. We would get ourselves a month ahead — for instance, everything we make this month, we budget for next month. That means this month’s income comes into our account while we’re using last month’s.

In order to do this, we used our tax refund from that year to pay for a month’s worth of expenses while leaving that month’s income in our account. The next month, we budgeted with the previous month’s income and have done so ever since.

This is especially helpful given that our income has always been variable. For a long time, he was paid hourly and eventually switched to salary. I was salary for quite awhile, but now my freelancing income is variable. Using last month’s income allows us to budget exactly the right amount each month.

If you’re able to do this, either by saving a little each month until you have a month of income saved or by using a tax return or other lump sum, it can give you a cushion and a little more peace of mind, especially on months with lower income.

If your lowest month is typically around $4,000, then base your expenses off of $4,000. Make sure that your bills and savings all fit within your lowest earning month’s income. Then, if and when you have a higher earning month, you can build up your savings or make purchases that you put off during lower earning months.

If you know your income is lower on some months and higher in others, keep a list of things you need to buy during a higher earning month and cut those things during lower earning months. When you have a higher earning month, you can put items from this list in the budget.

Sinking funds are basically small savings accounts for a specific purpose. Setting up sinking funds that fit within your lowest earning month budget can help you be prepared for expenses throughout the year. For example, if your car insurance is $300 every six months, you would save $50 a month. You can have a bunch of different sinking fund categories and use a spreadsheet to track them.

Freelancing offers a lot of freedom, but budgeting irregular income can be challenging. Following some (or all) of these tips and setting up a plan can go a long way towards making managing irregular income easier.

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I feel like there’s been a lot of gold on LinkedIn lately, and so far, it’s been the social media platform that I’ve had the most fun with. Here are some things I saved!

See you on Thursday!