A freelancer’s income can never be as regular as a paycheck. It will constantly fluctuate depending upon the needs of your clients. But while you might not be able to accurately calculate your income on monthly basis, you should still be able to prepare a budget that takes into consideration your clients so you gain clarity of whether you’re on track for your financial goals or whether there’s a need for you to make an adjustment.
As a freelancer, you might be subject to the same responsibilities and liabilities that a business has, but managing it from a personal point of view has a potential of getting a whole lot messier. A lot of people leave aside their hearty career to become freelancers. Most of them who do this realize that they are leaving behind a steady paycheck, but at the same time, they also miss out on a lot of other financial benefits that come with full time employment. So, the question arises, how to budget for your long term needs? It’s not easy, but it can be managed by budgeting smart and ensuring that there’s an emergency fund as well as some savings.
Tracking your expenses
You cannot put together a budget unless you know exactly how much you are spending on monthly basis. You need to monitor your expenses for about three months which include your flexible expenses – the ones that could vary and/or that you can eliminate if there’s a need. Once you’ve managed to track down your average expenses, it can then be measures against your average revenue. Post this, you can set a budget.
Eliminating any discretionary spending
When you are employed and have a fixed salary coming in on monthly basis, it’s easier to track your expenses on non-essentials and luxuries. It’s the time when you don’t really pay much attention to your expenses. Being a freelancer, things change and all your former habits could put you in trouble. When you’re working for yourself, it is easy to surf all sorts of things to buy but it’s time that you curb all the temptation to do this, even if you have extra discretionary money saved with you right now.
Combining short-term and long-term savings
If you haven’t already prepared this, you need to have an emergency fund ready for any unexpected expense. The emergency fund should consist of about three to four months of your income. If you manage to do this, you will not have to pull from your permanent savings for basic expenses like car repairs or emergency hospitalization due to any ailment. If you have been wondering on keeping two separate accounts for your savings, along with your permanent
savings, you are right. Dividing your savings would help you in keeping a track of what you already have, versus what you need to fill the gap if you use your funds.
As a freelancer, the need for being financially fit is all the more crucial because it’s often your sole source of income. There’s no financial backup if your business fails, or if there’s a delay with respect to payment from the client. It’s upon how you prepare for those – and any – catastrophes that have a likelihood of occurring.