Written by Freelancers are the modern equivalent of cowboys in today’s job market. They live by their own terms and enjoy being their own boss. While freelancing has many upsides, living like a digital nomad and running your one-man business also has its downsides. The main disadvantage is an unsteady source of income that can make budgeting seem like a challenge.
In addition to that, freelancers also have to deal with job insecurity and lack of insurance and other benefits that traditional income earners receive. This also means freelancers have to bear expenses from their own pockets for office costs amongst other factors.
However, even with an unsteady income and limited access to bank credits, freelancers can attain better financial health with smart budgeting.
In this article, we discuss budgeting tips to help freelancers boost their savings!
1. Spot the Patterns
Standard budgets are based on steady income streams and are convenient to set up using online budgeting apps. However, most freelancers struggle with inconsistent incomes and can have highs and lows in their earning capacity.
It is important to leverage high-earning periods effectively to ensure consistent savings. A good way to set a realistic budget would be to assess your income patterns over a fixed period to better determine your monthly average income.
This can help you plan for slow work periods and manage your expenses better when your income is tight.
2. Keeping your Professional Expenses Separate from Personal Finances
Self-management is at the core of any freelancing business. While this is an advantage, it can be exhausting to manage everything by yourself. This often makes you take a lenient approach to how you manage your personal finances and business expenses.
Separating your personal finances from your business expenses is crucial to maintaining a financial balance. While it may seem like an inconvenient, additional step, it is essential to better understand your business’s income flows and profitability. By separating the two, you’re able to allocate resources to your business more easily and curtail unnecessary expenses.
This is also beneficial from a tax point of view and minimises errors and confusion regarding your business income. However, it’s best to consult with an accountant to manage your tax obligations better.
3. Importance of having an Emergency Fund
Financial experts have long proclaimed the benefits and importance of having an emergency fund. However, it is financially sound advice as urgent expenses can snowball quickly into something major without the funds to deal with it.
Freelancers struggling with inconsistent income can especially benefit from saving for an emergency fund in their budget. It is more than a piggy bank for a rainy day and can help you manage your daily expenses during dry work spells.
This is beneficial in dealing with unexpected personal or professional expenses that may arise. It also minimises your need to borrow high-interest credit loans and stay debt-free.
4. Investing in Yourself
While you may be good at what you do, today’s competitive world requires you to be a cut above the rest. Therefore, it is always important to keep learning and acquiring new skills. You can improve your future career prospects by investing in your professional growth.
This, in turn, can lead to better work opportunities and increased income. Therefore, setting aside some portion of your budget for further education or training in your chosen field can be incredibly helpful.
This also includes professional equipment upgrades, investing in a mentorship programme, or joining accredited groups for networking. Investing in your professional growth can thus be a rewarding experience personally and professionally.
5. Review and Adjust at Will
Typically, budgets are reviewed every few months and if you’re on a tight financial leash, then every few weeks. This helps ensure that your budget is working effectively and helps you save money.
However, with freelancers, an inconsistent income source means your financial health is prone to fluctuations. While all budgets help improve finances in the long run, freelancers need to choose the right budgeting method to accommodate inconsistencies.
A zero-budgeting technique or creating a variable budget is better suited to freelancers than a standard budget. Reviewing your budget periodically can help you make adjustments according to changes in your income.
Conclusion
A flexible budget that can be adjusted easily to changes in income flows will work best for a freelancer. This can help improve resource allocation for your business and help you manage your finances better. We hope this article has helped you gain a better understanding of how you can make the best use of a budget as a freelancer.