How to Budget on a Freelancing Income
2009 was marked by a declining financial market contributed to by the highest unemployment statistics in 25 years. Many of those who lost their full-time status have taken this opportunity to reinvent themselves and generate their own income by becoming freelancers.
With a freelancer lifestyle, at one point you can be rolling in the dough while the next minute you may be rolling your eyes at the most recent excuse for a delayed check payment. Knowing and accepting this uncertainty is the key. By reviewing all the points comprising your financial health, you will have a “big picture” scenario of your financial budget and can make the task of budgeting easier and fine-tuning your money management skills will provide success. Some tricks for freelancer financial budgeting are:
Upon achieving full-time status, employees can rely on their employers to automatically withdraw taxes based on the employee’s completed W-2 form. Freelancers complete W-9 forms and are responsible for paying for their own taxes. Freelancers must remember to put aside Uncle Sam’s share (25% should do the trick) to avoid a financial conundrum on April 15. Opening an online banking account and nicknaming it “taxes” is an easy way to move and store the cash.
Knowing an estimate of your monthly income is crucial. On a monthly basis, do your best to project your total earnings and then low-ball the number, in case something falls through.
Discussing the estimated workflow with your manager is the best place to start. Plus, if it is lower than average, you will have enough warning to find other opportunities for income during the time period.
Every month rent or mortgage payments are due, electric bills must be paid and food must be put on the table. Freelancers must go through their budget and get a grip on fixed expenses.
As soon as you receive your check transfer the tax money and pay these bills first!
One of the most important fixed expenses for a freelancer is private health insurance. As your own boss, you will be responsible for paying for this benefit and monthly premiums out of pocket. The great news is when it comes to tax time, this is one of the best deductions to claim and may allow you to keep some of the money you put aside for your taxes.
Stash Your Cash
Saving for a rainy day is just one trick to embracing and budgeting for a freelance lifestyle and multiple bank accounts is a way to assist in that task.
Accounts should include options for depositing your income, a savings account for an “out of sight out of mind” emergency fund and finally an account specifically for “taxes.” Even when money is tight by following the $5 rule (save ever fiver that comes your way). One woman saved $12,000 over a 3-year period with this method.
Living a life fueled by feast or famine is stressful to say the least. As a freelancer, you may find yourself in the position of hustling and bustling to secure your next gig. Not having a paying job is a risk that all freelancers take, but by taking the time to set up a financial budget and saving what you can in between, you will be provided with a rewarding work scenario.
If you’re a freelancer, how to you budget?