Budgeting for Freelancers

Let’s talk about your budget.

Did you flinch? It’s okay. The prospect of setting a budget makes most people uncomfortable. But, I promise you, budgeting isn’t your enemy.

Unfortunately, you can be your own worst enemy when it comes to budgeting. As freelancers, we face certain unique challenges when it comes to our finances. We have near-complete control over our income, but this can be a double-edged sword: with no one to tell us how our money should be spent, it’s all the easier for us to fritter away our hard-earned cash, leaving us penniless when the inevitable dry spell comes around.

There are 10 key ingredients to simple, effective budgeting.

1. Start by Setting Goals

I’ve already talked about how goal-setting is essential to increasing productivity. Well – surprise! – it’s also essential to effective budgeting. (Is there anything goal-setting can’t do?).

The best budget is a budget with a greater purpose. What are your money-related goals? What are you working towards?

Whether you’re saving up to buy a house, a TV that takes up an entire wall, or simply want to have enough cash to take a full guilt-free week off, having your ultimate goals written down will help you to ultimately achieve them. Once you have a clear idea of what you’re implementing a budget for, you can do just that: implement it. Because a plan without action is worthless.

2. Make Time

I’m not going to lie to you: sitting down to work out your budget can be a little dull. Fortunately, budgeting doesn’t have to take up much of your time. That is, if you actually make time to budget. And you really, really should.

Setting aside time to create a budget is your first action step. And, trust me on this, you have time. By simply setting aside half an hour (or less) at the beginning of each month, you’ll end up saving time – and money! – in the long run.

So crack open a fresh legal pad and grab a pen, or invest in some budget tracking software and get down to it.

3. Cut Back…

I’ve always been into the idea of trimming the fat, and not just around my abdomen. The truth of the matter is, we all have some “fat” in our daily lives that can be cut out:

  • Unused gym memberships.
  • Cable television.
  • Salon haircuts.
  • Expensive clothes.
  • Frequent restaurant meals.

It’s time to start thinking “need” rather than “want.” Be honest with yourself and ask, “Do I really need this to survive?”

Most budgeting gurus will tell you that “saving” is the name of the game. And I’m going to tell you the same thing. However, as freelancers, saving up isn’t always as easy for us. In order to save, we need to have money to save. And that means cutting back on some of our luxury expenses along the way.

4. …But Don’t Cut All the Way Back

All right. I can sense that I’m starting to lose you. No one likes being told to chop out the “wants” in their life to make room for “needs.” That sounds horribly restrictive, right?

Relax. I’m on your side. One of the main reasons I became a freelancer in the first place was to have more freedom in my life, not less; and I’m guessing you’re a kindred spirit.

A huge part of successful budgeting is making sure that every piece of your income is accounted for. In the old days, budget-conscious individuals would use envelopes to divvy out their earnings into the appropriate categories: bills, food, emergencies…and fun. Yes, fun.

That Fun envelope is vital. If you don’t set aside a little bit of money for guilt-free fun each month, you’re likely to lose your motivation (and potentially your sanity) and give up on budgeting entirely. And that defeats the purpose.

As you grow more and more successful, the amount you deposit into your fun fund is likely to increase; however, if your funds are already tight, there’s still great value in even the smallest amount of fun money. $5 or $10 per month can still give you the simple pleasures in life (a drive-thru meal, a candy bar, a matinee) and keep you feeling human.

5. Keep Track of Your Ins and Outs

If you don’t know how much money you have – and how much you’re spending – it’s impossible to budget. Simple as that.

Keep track of the money that’s coming in as well as the money that’s flowing out. If you haven’t been doing this already, start now. You may even need to take a month of two of living “normally”, while tracking your money’s every move, before you jump in and analyze your budgeting needs. (It’s hard to make changes if you don’t know what needs changing).

6. Plan for the Unplanned

Life happens.

There will always be little things that crop up and get in the way of your day-to-day life. Hopefully they won’t crop up on a regular basis, but it’s always wise to set aside a little money each month into a rainy day fund. Medical emergencies and natural disasters aren’t the only “rainy days” you’re saving for – as a freelancer, you’ll also be saving for the inevitable dry spells (the Feast or Famine Cycle) that come along in our line of work.

7. Manage Your Invoices

Without income, you’ll have nothing to budget. Stay on top of your clients and invoice them on time.

Personally, I like to invoice my clients at the beginning of each month. If I have my total lump sum in front of me at the start of the month, I know exactly how much money I’m working with (and how much can be allotted to each area of my finances).

The ultimate goal is to live on last month’s income – having paid every bill one month ahead of time.

8. Think Bigger

If you’re used to living paycheck to paycheck, this can be the toughest adjustment to make.

Think about your yearly expenses. If you have bills that are due each year (web hosting? membership dues? car insurance?), take them into account. Save a little bit of money toward paying them each month. If web hosting costs you $120 per year, set aside $10 per month in a web hosting “envelope” so, when the time comes, you’ll be able to pay off your bill without taking a major hit in the wallet.

9. Change Your Mindset

Yes, budgeting can be uncomfortable. But, you know what? Most of that is in your mind…

Budgeting is your friend. Feel free to say that out loud if it helps.

Instead of thinking of all the things your budget takes away, start to think of all the things it adds. By enforcing a budget on your freelance income, you’ll be adding security and peace of mind. You’ll be ensuring that your future is provided for, and that’s a great feeling.

10. Keep Trying

Proper budgeting takes practice. You won’t get it overnight. And “perfect” may be several years down the road.

Be prepared for an ongoing trial and error process. And don’t be too hard on yourself if you go over-budget your first few months in. Dust yourself off, make adjustments as needed, and keep trying.

Perseverance is the name of the game. And, as a freelancer, I know you’ve already got that quality in spades!

What do you think? Do you have any other suggestions for setting a budget?