How to budget as a freelancer

Ever since I started freelancing full time, people have asked how I’ve been able to handle the instability of being self-employed. For the most part, being a freelancer isn’t much more stressful. I get to set my own hours, work from home and not go outside when it’s cold.

But it also means that I have to finish my work before I can get paid. Before, I used to get paid for one week of work I’d already done and one week I hadn’t. This can be a huge issue for freelancers who have clients who pay on publication or who are slow in processing invoices.

Here are my tips for how I budget as a freelancer:

Live below your means

One of the easiest ways that I avoid worrying about money is by spending less than I earn. Sounds simple right? If you earn more than you need, then you can cover all your bills easily. Even if you have a slow month, you won’t have to dip into savings to pay the rent.

I save 10% of my income every month and if there’s still money left over, I put that in a separate fund. If you try to earn only as much as you need to pay your bills, you’ll always be worried about running out. By giving yourself a cushion, you’ll be saving money and decreasing your stress levels.

Have an emergency fund

Before my husband and I started freelancing full-time, we saved up six month’s worth of expenses. Most people should have at least three month’s worth. If you’re paying off debt, $1,000 is generally accepted.

When you’re self-employed, it’s good to have more money set aside for surprises. My emergency fund keeps me from worrying if the freelancing well might dry up. When we buy a house, we’ll set aside a year’s worth of expenses. Saving up for an emergency fund can take a while, but it’s worth the wait. The more risk you expose yourself to, the more you need to do to mitigate it.

Plan expenses based on the previous month

This is one of the most important strategies I use to budget on a freelancer’s income. When you’re getting paid for work you’ve already done, it only makes sense to spend money you already have. For example, in December I’ll base my budget off how much I invoiced for November. That way I’m not counting on money in December that I haven’t earned yet.

The budget system You Need a Budget also recommends this, even if you’re working a traditional job. It offers even more security on top of budgeting carefully and having an emergency fund.

Always Be Marketing

One of the most important ways I increase our cash flow is by always reaching out to businesses. Even though it would be easy to get comfortable, I’m always trying to find more companies that I can work for.

You never know when one of your mainstay clients might switch to in-house employees instead of freelancers. By always working on getting new business, you position yourself against the threat of getting fired.

What I’ve Learned

You have to change your mindset when you start freelancing. There’s a lot more responsibility when it comes to what you earn and how much. If I take a sick day, that’s a day where I didn’t earn anything. If I misbudget our finances, it’s on me.

But this lifestyle also allows more flexibility. We can take longer trips home and work during the pockets of time we find. We can go hiking and skiing on the weekdays when there are fewer people around. We can work on increasing our efficiency so we can work fewer hours.

It’s not an easier journey, but it is a more rewarding one.

If you’re also self-employed, tell me how you budget your finances in the comments below!


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