Ed. Note: Most freelancers don’t get holiday bonuses or annual raises, so we have to budget carefully to ensure that we have enough moola to cover holiday gifts, extra expenses for travel and other costs, and of course run-of-the-mill costs like car repairs or medical bills. I recently reviewed The Money Book for Freelancers, Part-Timers, and the Self-Employed, which covers some strategies for smoothing out the financial ups and downs of freelancing. Here’s another take on this topic.
By Jim Vela
If you’re a blogger like I am, you already know the many benefits of a full-time freelance career. You can generally set your own hours, work when you want, how you want, where you want, and enjoy a number of other freedoms that traditional jobs don’t provide. With all the perks, however, come a few necessary evils, one of which is an inconsistent income. Unless you’re one of the select few who has significant assets to fall back on, you likely face lots of financial ups and downs. Despite the precarious nature of your freelance career, there are ways to overcome it. For some helpful guidance, read on.
- Create an Accurate Budget
Your first step is to make a personal budget. Detail all of your fixed expenses, including your rent or mortgage payment, utility bills, phone, cable, transportation, and food costs. Most of these expenses are either fixed or close to it, so you can give yourself a benchmark that you know you have to meet each month. The challenging part is estimating a variable income. Either calculate your average monthly income over the course of the past year, or, to make your budget virtually bulletproof, base it off the worst month you’ve had recently. Whichever income-estimating method you use, the goal is to get your monthly spending under your income, so if it’s not there on the first draft of your budget, it’s time to cut some costs. Be sure to include a budget line for taxes, which in most cases you’re going to have to pay quarterly. Estimate your tax obligations and always set aside at least that amount as soon as your money comes in — don’t fool yourself into thinking that money belongs to you. Dealing with your expenses as a freelancer is challenging enough, you don’t want to burden yourself with the consequences of failing to pay your taxes on time.
- Religiously Save Money on Expenses
You can save money on just about every expense under the sun, if you know how. Start with food costs. Clip coupons to save on your groceries and look for restaurant discounts on deal of the day websites like Groupon and LivingSocial. Request an audit from your home energy provider to discover ways to shave utility costs. You may be able to reduce your bill by more than 30 percent. Bundle monthly services like Internet, cable, and cell phone under a single plan, and you could knock $10 off each service. If you can get by without a home landline, drop it. That move could slice another $500 off your annual budget.
- Curb Spending
Resist the urge to purchase the latest electronic gadget and instead keep that money in your pocket. Remember, your income is never guaranteed, so you want to establish as much of a cushion to fall back on as possible. For every big purchase you forego, that’s another handful of dollars in the bank to help you sleep easier at night. When you’re faced with a potential purchase, ask yourself if it’s something you truly need or simply something you want. Cut back on the wants as much as possible so you ensure having enough money for the things you need. Train yourself to understand the difference between the two.
- Limit the Celebrations
If you have a great month, be sure to reward yourself for it, but don’t splurge. If you end with a surplus, set some of it aside for the leaner months, or use it to pay down your current debts. You could also beef up your retirement contributions or boost your emergency fund if necessary. Always feel free to spend something on yourself, but remember the importance of staying one step ahead of the financial game whenever possible.
- Commit to an Emergency Fund
An emergency fund is essential for anyone with a fluctuating income. 9-to-5 workers have a steady paycheck to rely on – you don’t. Create an emergency fund so your finances aren’t thrown for a loop whenever your car breaks down or you get sick. Shoot for the recommended 12 months’ worth of living expenses as your eventual goal, and get there by contributing to it every time you earn a paycheck, even if it’s just a few dollars.
Freelancers, what budgeting tips would you add?
Jim Vela is a freelance writer who enjoys sharing his experiences and tips related to business, personal finance, frugal living, and travel.
Photo courtesy of sakhorn38 / freedigitalphotos