Guest post by Katie Pierce
The allure of freelancing draws many to its doors, but the excitement of working for yourself can quickly wane when faced with financial realities. Without the cushion of a steady paycheck, managing finances as a freelancer can be more art than science.
From fluctuating income to figuring out how to catch up on bills, this article aims to guide freelancers through the nuances of budgeting in the ever-evolving world of independent work.
Diversify Your Income Streams
While having one or two steady clients or sources of income might give you a sense of security, freelancing is unpredictable. So, learn to diversify!
Multiple Skills, Multiple Avenues
Think about complementary skills that you have, and how they can be monetized. For example, if you’re a writer, consider offering editing services as well. Graphic designers can also look into UI/UX design projects.
However, don’t spread yourself too thin by taking on more than you can handle or venturing into areas outside your expertise. Always ensure that you maintain a standard of quality in all the varied services you offer.
Passive Income
Passive income can be a boon to freelancers. This can give you a steady source of income even while you are on vacation. Start by identifying niches or topics in your field with high demand but limited resources.
For example, you can invest time in creating digital products. To reach wider audiences, use platforms like Udemy for courses, Shutterstock for stock photos, or Amazon’s Kindle Direct Publishing for eBooks.
Analyze and Adjust Monthly
Unlike a salaried job, your freelance income isn’t predictable. To stay on top of your income and expenses:
Review Expenses Monthly
At the end of each month, review your expenditures. Did you overspend on tools or subscriptions? Can you opt for a more cost-effective alternative? If you haven’t been using these for a while, by all means, cancel away!
Income Analysis
Were there pay periods where you earned more? Why? Maybe you took on more projects or increased your rates. Understanding this can guide your actions for the upcoming months.
Stay Updated with Tax Obligations
As a freelancer, you’re your own accountant. Regularly consult the IRS website or your country’s tax authority for updated guidelines related to self-employment.
Use financial tools or software like QuickBooks or FreshBooks, designed for digital nomads, to track your income and categorize expenses. This makes it easier to calculate potential deductions.
Regularly set aside money for taxes, typically 25-30% of your earnings, to avoid end-of-year surprises.
Save Before You Spend
It’s tempting to spend when you get a big paycheck. But remember, freelancing has its dry spells. To keep yourself in check, consider these tips:
50/30/20 Rule
A popular method is to allocate 50% of your income to necessities, 30% to wants, and 20% to savings. This might vary based on individual circumstances, but it’s a good starting point.
Automate Savings
You can leverage online banking platforms to set up automated transfers from your main checking account to a designated savings account. Utilize the scheduled transfer features to ensure a predetermined percentage of your income is seamlessly moved each payday, making saving an easy and consistent practice.
Professional Growth
Remember, as you grow in your field, your rates should reflect that growth. Here are two ways to help you build your freelance career.
Continuous Learning
Invest in courses, webinars, or workshops. This not only enhances your skills but also justifies raising your rates.
Ask for Testimonials
A happy client’s feedback can be your ticket to more and higher-paying gigs. Collect and display testimonials prominently.
Planning for an Enjoyable Workation
Don’t worry, being a freelancer is not always stressful. In fact, there are many perks to the job. For example, take the “workation,” where you continue to work while exploring new cities or countries in your free time.
Just imagine being able to work while enjoying a view of the serene beaches of Bali or while nestled in a café in Paris. However, if you’re constantly worried about your finances, your dream of having the much-desired work-life balance can quickly turn into a stress-filled ordeal.
Planning your workation before you leave home can help you make the most of your travel, while ensuring that your finances will carry you through. Here’s how you can make it happen for yourself:
Project Your Income
Begin by assessing the contracts and jobs you’ll have during your workation. Account for the estimated income and set realistic expectations. If there are gaps, perhaps it’s time to look for another gig before you travel.
Understand the Costs
Research your destination. Know the costs of travel, accommodations, co-working spaces, internet and cell service, food, and other essentials. Make a daily or weekly budget. Be sure to include day trips and outings in your budget.
Have an Emergency Fund
Always, always have a buffer. This will safeguard against unexpected expenses or a late-paying client. This emergency fund should ideally cover at least six to nine months of basic living expenses, including essentials like rent or mortgage, utility bills, groceries, transportation, insurance premiums, and minimum debt payments.
Final Thoughts
Freelancing offers the freedom to shape your professional journey, but this comes with a ton of responsibility — especially where finances are concerned.
By taking a proactive approach to budgeting, staying adaptable, and continuously growing as a professional, you can master the financial challenges of freelancing, turning them from hurdles into stepping stones toward a prosperous future.
Katie Pierce is a teacher-slash-writer who loves telling stories to an audience, whether it’s bored adults in front of a computer screen or a bunch of hyperactive 4-year-olds. Writing keeps her sane (most of the time) and allows her to enjoy some quiet time in the evening before she walks into a room of screaming kids (all of whom she loves dearly) the next morning.
