Money Management Tips For Freelancers
More and more people are taking the freelance route. Be it designers, writers, tutors or even architects, plenty of people who can manage work from home or projects on contract basis are becoming comfortable with the freedom that comes with choosing your own projects. And freelancing gives you exactly that. However, with all the perks, there is a specific downside to freelancing – irregular income. You might get paid well for a specific project, but monthly income becomes a thing of the past. Amidst all this, budgeting may seem like a daunting task, but it becomes even more essential to track expenses and chart out a budget for yourself.
From noting your monthly expenses to following money management tips, there is a lot you can (and should) do to ensure a smooth and stress-free life despite the absence of regular pay cheque on the first of every month. Ready to dive in and learn? Keep reading!
Why Budgeting Is Necessary?
To say the least, budgeting should be a habit you practice regardless of how regular your income is. Going into adulthood is all about managing your money , where your next pay cheque is coming from and how much you are spending. All of this helps you in ensuring you don’t overspend, rake a huge credit card debt, or simply shirk on saving for retirement and other important goals.
If you are just starting out on your freelance journey or have been doing this for long and haven’t figured out how to go about it, these budgeting tips will help you become financially independent and sorted.
1. Don’t spend what you haven’t earned
This one comes from personal experience because in your early days of freelancing you might be prone to spending thinking that you have submitted your assignment, your client will pay you in time. Spoiler Alert: Clients might not always pay on time and your budget for the month will go haywire if you overspend without receiving the money. Thus, always spend the money you have in your account, not the money you have in pipeline or are yet to be paid.
2.Track expenses monthly and set a spending limit
One of the best financial tips for freelancers is to track expenses monthly and without fail. Get a planner, jot down your cash inflows as well as outflows. Once you have a basic idea of how much you are spending per month on rent/EMI, bills and your investments, you will have a fair idea of how much you need to put aside for your living expenses. This will automatically put a spending limit on expenses because you know your income is not going to be regular.
3.Save and plan for your trips
Vacations and short weekend trips are something we all need once in a while. Living life as a freelancer, you will have the freedom to go on these trips anytime you want but saving up enough money for the same is important. You cannot book one on impulse without having enough in your bank accounts. Thus, if you have a big (read extra income) coming from a contract-based project, go for that vacation and maybe give the seasonal trips a rest if you are short on work right now.
4.Set your priorities straight
Financial priorities differ for everyone. Some might want to save for their retirement, other people might want to pay down their debt and focus on buying a car or house in the near future. Whatever it is you are prioritizing right now, make sure you include it in your monthly plan. Any extra income you earn should go in the savings fund for the same. And if you are feeling generous, putting away a percentage of money from every project of yours is a sensible idea to achieve those financial goals.
5.Go for the 50/30/20 budgeting method
This is a popular way of budgeting for freelancers and it works wonders. With each cash inflow, you spend 50% on your needs that is the basics like rent, food, and other utilities like paying your house help and investments (if any). Next up, you spend the 30% on your wants like shopping, dining out and the likes. The remaining 20% is what you put in your savings for retirement and the time period where you may not have any income.
6.Always have an emergency fund set up
There will be emergencies and as a freelancer, you might not have the security of your pay cheque coming in next month, thus setting up an emergency fund worth one year of living expenses should be a priority on your list of managing your money. Set up a Recurring Deposit or Fixed Deposit for this and earn those interest as well.
7.Separate your personal and professional accounts
This might sound like a trivial thing in the grand attempt to manage your money as a freelancer, but it is important in the long run. When you separate your business account (the one where you receive your payment) from your personal account , you get a lowdown on how much money is coming in and how much are you actually spending. Moreover, you are bound to spend within your means when it is a separate account where you deposit a fixed amount monthly.
When it comes to living as a freelancer, the uncertainty of your income is the only thing that might throw a wrench in your plans but if you manage it effectively, it can become an amazing way to live life.