Working as a professional freelancer is an exciting and equally challenging experience. As a self-employed professional, you have a level of freedom and experimentation often not afforded to those working with a particular company.
An essential part of the experience is the financial responsibility that comes with being a full-time freelancer. Every month you’re responsible for managing your income and balancing your fluctuating budget. This is an important step so that you don’t wait to borrow money until you’re too deep in debt.
Gauge Your Overhead
The word overhead is typically used to describe the expenses of a business. Since you’re self-employed, you are your own business, and you need to understand your overhead. These are essential expenses that you need to manage your day-to-day life — including rent and utilities, food and medication, and additional expenses like daycare or car payments.
Once you’ve gauged your overhead, you’ll know how much income you need to bring in monthly. If you’re coming up short, you’ll know you need to find additional projects to supplement your income.
Pay Yourself First
To create a healthy budget and sustain a freelance career, paying yourself first is an essential step. Before you spend your income on variable expenses like entertainment or travel, ensure you’re contributing every month to any debts you might have. The same goes for your savings accounts and any potential investments.
As a full-time freelancer, you may be subjected to paying some type of freelance taxes — if you can stay ahead of the curve and set aside money for tax season when the time comes, you won’t need to worry about making those payments.
Explore the 50/20/30 Method
It can be challenging to know exactly how much to spend on your various expenses — that’s why the 50/20/30 method has been a helpful tool for self-employed professionals. This budgeting method is a healthy spending guideline, covering all of your financial bases.
To begin, take your income and divide it by your monthly taxes. From there, focus on your necessary expenses — this potentially includes rent and utilities, car payments, and groceries. You’ll want to set aside 50 percent of your income for these expenses. Paying yourself comes next, with 20 percent of income allocated to investments, debt payments, or retirement. Finally, the remaining 30 percent is for discretionary expenses.
With this budget tool, there is room for changes as it may not work for each freelancer equally. It’s up to you to decide how best to allocate your income so that you can build a secure financial future.
Find the Right Budget App
With various deadlines and invoices coming and going, it can be challenging to keep track of your payments — let alone how to budget for them, mainly because each client may pay you at a different time of the month.
If you need assistance, it may help you look to a financial budget app to get started. Budget apps offer convenience and a streamlined process which can be especially helpful for self-employed professionals. You can track your income, payment dates, and expenses all in one location. Life as a full-time freelancer is as exciting as demanding, but you can stay ahead and find true financial freedom with the right mindset and resources.