As a freelancer, your financial status is different from those with a fixed monthly income and hence, creating a judicious budget is important. So what are the best practices to be mindful of in order to be able to do this?
First of all, it is difficult for freelancers to predict their expenses when the inflow of cash is erratic. However, that shouldn’t stop you from tracking your expenditure and controlling your finances. Here are some straightforward budgeting strategies that will prove advantageous to your financial planning if you are a freelancer.
“It is difficult for freelancers to predict their expenses when the inflow of cash is erratic. However, that shouldn’t stop you from tracking your expenditure and controlling your finances.”
1. Track your expenses.
Keeping a check on how much you spend on essentials like rent, food, utilities, transportation and other fixed monthly expenses will help you better understand how much money you need to earn each month just to cover the fixed costs. This is the first step. As a freelancer, you must remember that your income may fluctuate bringing in the need for comprehensive budgeting to ensure your expenses remain constant and under check.
Everything you earn over and above this figure should be directed towards savings, extras, or your retirement account.
2. Set a monthly spending maximum.
Some months, you may earn a lot more than previous months and it can be very tempting to enjoy a spending spree to celebrate. However, defining a frontier for your expenses will give you more financial security for the months when you may have lower than usual earnings.
3. Eliminate what you don’t need
The simplest and easiest way to have a healthy freelancing budget is to eliminate the wants while keeping the needs. Of course, it does not mean every want must be neglected. As soon as your freelance gig starts catapulting, you can comfortably afford the not-so-necessary expenses once in a while to reward yourself for the hard work you’ve put in. But it’s also vital to be able to identify what you can strike off if you need to.
“As soon as your freelance gig starts catapulting, you can comfortably afford the not-so-necessary expenses once in a while to reward yourself for the hard work you’ve put in. But it’s also vital to be able to identify what you can strike off if you need to.”
4. Set financial priorities
It is advisable to allocate a major chunk of your income on the expenses that are indispensable and a smaller chunk (about 30%) on variable costs, such as your leisure and miscellaneous expenses. It is a must to keep aside 20% of your income as a savings fund, pension fund or debt payments.
5. Bifurcate funds into short & long-term savings
This is a wise step in the process of budgeting as it will help you build up your emergency fund for sudden unforeseen expenses as well as your long-term savings plan—like buying a home. It’s always important for freelancers to keep a bulky savings fund considering their income is not fixed adding to the uncertainties and unpredictability of the future in terms of finances.
6. Set a business budget and time your payment receipts
This step helps you plan out your monthly business income and expenditure before the month begins. It’s important for you to set a well-defined timeline for your projects and client invoicing so that you receive your payments on time avoiding spillage in the following months. This also means that you have to be in constant touch with clients to plan forthcoming work.
In order to move up the growth ladder while creating a robust financial framework for yourself and your business, budgeting is extremely important. It is, in many ways, greatly significant for you than for those with a regular job and a fixed income. Now after you’re through with the budgeting process, it needs monitoring. Even the most astute plans need reviewing every now and then. Remain vigilant with your budget regularly to find out if there’s room for further improvements. By frequently checking your budgeting, you’ll remind yourself of your end goals and remain motivated to achieve them.
About the Author
Vanshika Goenka is the CEO & Founder of Kool Kanya, an online career community for women where they can be part of a mutually supportive ecosystem that helps them learn from each other and grow in their careers. The issues that Kool Kanya wants to help resolve include providing a space to ask questions, fostering connections with people in similar fields, giving access to tools to help deal with legal and financial aspects, finding mentors and finding opportunities for collaborations. Over the last year Kool Kanya has successfully seen a reach of over a 1M users and are looking to launch their Marketplace soon.
