Work – and payment for it – can both be irregular visitors if you’re a freelancer, especially if you’re still getting established.
That might make you think there’s little point in bothering with a budget – but you’d be wrong. An irregular income makes budgeting even more important.
if you’re not sure where to start with your freelance budget, then start right here with our 5 tips for managing your budget as a freelancer.
Have a Financial Safety Net
An irregular income means that you need to put either a set amount or a percentage of your money away each month to see you through the leaner times. It may be tempting to go and blow your cash when you’ve had a particularly good month, but it’s highly unwise.
Freelancing brings few guarantees. That high-paying client who has given you regular work for the last year could change their mind next month and give it to the opposition – or bring it in-house.
The other reason for a financial safety net is of course the tax bill you may receive at the end of the financial year.
It’s best to calculate your tax liability as you go to ensure you’re putting enough of your earnings aside to pay your bill.
When you invoice, it’s easy to think of that money as money earned. Sadly, back here in reality land, you haven’t earned anything until it’s in your bank account. There’s little value in feeling that you’ve had a busy and financially successful month when you haven’t actually seen the money, so ensure you track payments and unpaid invoices to ensure the cash is flowing.
Invoice as soon as work or work stages are complete. Contact clients as soon as their invoice becomes overdue, and don’t hesitate to take action if they delay payment further.
If you’re charging by the hour or pricing jobs by estimating the time they’ll take, keep a careful eye on the hours you’re putting in.
Don’t be tempted to bill for fewer hours than you’ve worked if you can honestly say you were working flat out within that time, and if you find out you’re persistently underestimating – and therefore, underquoting – for jobs, correct that quickly and don’t make the same mistake again.
Track ‘hidden’ costs and living costs
It’s easy to pick up bits and pieces for your business life but pay for them out of your personal money. You may not think, as a freelancer, that your business money and personal money are separate things – but they are. A pack of pens, postage, the folder you bought to file your invoices away, that train journey to a client meeting – these are business costs, as are portions of your home utilities, broadband and phone bill if you work from home.
As a freelancer, you also need to have an accurate idea of your living costs. If you don’t know how much your bills come to or what your average spend on essentials is, then how can you possibly know how much you need to live? Do the maths. Work it out.
From there, it’s up to you to decide what luxuries make the difference between surviving and living for you. A bar of chocolate on a Friday, an evening out on Saturday, a few weekend breaks throughout the year…? Decide what you want from life and then assess if and how you can afford to pay for it by freelancing.
Prioritise Your Spending
It may sound obvious, but some bills and expenses are more urgent and important than others. Ensure you’ve got all the vital things covered before you spend money on luxuries. If you’re not sure your earnings will cover your rent, food and utilities this month and your safety net is, as yet, small or non-existent, then don’t spend money on luxuries until the cash starts flowing in.
Another aspect of this financial prioritizing is thinking long-term – beyond that safety net. What do you want to save for? What are your future plans? Are you protected if something goes wrong and you can’t work anymore, and what about pension planning? It’s vital that you put a proportion of your money away for the long-term and you may want to spend part of your monthly budget on insurance that protects you and any dependents if you are injured, become seriously ill or – unpleasant as it is to consider it – die.
Many employees have these benefits and insurances as part of a package from their employer. As a freelancer, you don’t have that advantage. It’s up to you to protect yourself against the financial consequences of these events and reduce your vulnerability.
Following these tips should help you stay on the financial straight and narrow – and hopefully they’ve made you realise, if you hadn’t already, that a freelancer really does need to budget!