Becoming a freelancer is as equally daunting as it is liberating. While being your own boss is rewarding, it does have its challenges, these challenges compound when you don’t spend time preparing yourself for a career as a freelancer. They can also lead you to doubt whether freelancing should be something you pursue long-term. Not to worry though, you can easily overcome these challenges by preparing a freelance budget.
Find Ways to Make Money When Starting
The first thing you should do as a beginner freelancer is to find an interim income source. Building a profitable and sustainable freelancing career takes time. If you plan on eating, sleeping, and paying bills during that time, you need an alternative source of money. Having an alternative income source doesn’t mean you aren’t a successful freelancer. It only means you are being sensible and allowing yourself enough time to build a successful business.
The challenge most new freelancers encounter is that they assume the moment they start, clients will begin hiring them. The opposite is usually true. It takes a few months to build a significant client base that allows you to work on your own terms and earn a reasonable monthly income. While you wait for that income, you should find other things you can do to earn more money to ensure you don’t relapse into nine-to-five work.
Approach Your Previous Employer for Work:
Sounds odd, but approaching a previous employer is an excellent way to meet two objectives. Not only do you allow yourself to earn money while you’re looking for other clients, but you’re also able to build your portfolio without the effort of researching new clients. Admittedly, this option won’t work for everyone. But, if you worked at a small business where you were either downsized or furloughed, your previous employer may still need your services.
Begin your introduction by mentioning that you freelance, listing your services, and highlighting the benefits of not hiring you full-time. Since they are already aware of your work ethic, you won’t have to spend too much time selling yourself.
Join a Marketplace:
Marketplaces like Fiverr and Upwork are excellent sites for beginner freelancers to start. Some freelancers get most of their business on these marketplaces, while others only supplement their income. If you want to earn top dollar, you should consider using these marketplaces at the start of your career while building your business outside of these platforms.
Another benefit of using a marketplace is that you learn all you need about freelancing, from a community of established peers, while doing some competitor research.
Get A Gig Economy Job:
Another way to supplement your income while building a client base is to get a job in the gig economy. Driving or delivering for Uber, Postmates, DoorDash, or Lyft are all jobs you could do when you need a little extra money or want to get paid but don’t want to commit to a long-term gig. Another way to make that extra money grow is by investing it or doubling its growth by using platforms such as Casino Bonus, which you can then use to funnel back into your freelance business.
Budget For Personal Expenses
Most beginner freelancers grossly overestimate their earnings potential, often thinking they can cover all their personal expenses on a freelance income. Although it is possible to make enough money to sustain yourself, you will probably only make that once you start getting consistent freelance work, not in the very beginning. That’s why the best freelance budgeting tip you’ll receive is to calculate your monthly expenses.
Your expense sheet should include food costs, gas, your car payment – or other transport needs – health insurance, and rent. Try to keep these expenses to a minimum, especially at the beginning of your freelancer journey, to ensure you don’t overwhelm yourself.
Having this calculation will also help you determine how much money you need.
File Estimated Quarterly Taxes
Unfortunately, many beginner freelancers think their pre-tax income is all their income. It isn’t. One of the perks of being self-employed is filing taxes. To do this effectively, you should begin by calculating your income to determine your tax bracket. After doing those calculations, if you expect to owe the IRS more than $1,000, which is likely, choose to pay your taxes quarterly. Paying your taxes quarterly also means you aren’t left with hefty fees during tax season.
Save To Help Pay Your Taxes:
As an extension of tip #3, you should consider opening a savings account to deduct your tax obligations. For example, if you know you will be taxed 15.3% in self-employment tax and another 15% income tax, set that percentage aside each month to cover your tax payments.
You should also discuss your obligations with a tax professional to ensure you maximize how much you save on deductions. Do not concern yourself with the cost of hiring a tax professional; the money you spend doing this, you’ll make up in savings. If you’re unsure how much you should save, start by finding out what your monthly average income will be. This figure is calculated by finding your annual income and dividing it by twelve.
Prioritize Your Spending:
As a freelancer, your income fluctuates. One month you could have thousands extra, and one month you may not earn as much. For this reason, following the 50-20-30 rule gives you flexibility while enabling you to remain within budget.
The 50-20-30 rule, first coined by Elizabeth Warren in her book Your Worth: The Ultimate Lifetime Money Plan relays how you should divide your income. In this book, 50% of your take-home pay should go to needs and obligations, while 20% should go to saving and debt, and the remaining 30% to anything you want.
Another perk to budgeting as a freelancer in this way allows you to have multiple savings goals.
Open A Savings Account for Emergencies:
A great way to prepare for quieter months is to develop a savings plan and place a predetermined amount in a member FDIC bank. Freelancers don’t have the benefit of having some emergencies covered by their employers, so they need to save up. But the lack of these benefits doesn’t mean emergencies stop. For this reason, try to save around 10% every month toward your emergency fund and only use that money when it’s necessary. If you know you can start withdrawing money regularly, consider saving money specifically for a financial emergency, where you can easily withdraw the funds when you need it.
Open An Account for Your Business Expenses:
Client meetings and other business expenses should never be included in personal costs. Besides your general debit card, you should have a separate bank card for your freelance business to ensure you’re keeping track of your finances. While you don’t need to register an LLC to manage your business costs, creating a separation between your personal and business expenses ensures you aren’t digging into finances intended to be used for your freelance business and vice versa. Your freelance business expenses could be anything from web hosting for a website to business lunches with new clients.
Save In a Retirement Account:
To better manage budgeting as a freelancer, focusing on retirement planning. At a regular nine-to-five most of these mundane aspects of finances are taken care of but being self-employed means, you should save toward your retirement. Don’t add this amount to your regular savings account. Instead, save it in a dedicated retirement savings account like a ROTH IRA or 401(k). Many retirement accounts are also deductible, giving the dual benefit of reducing your financial burden to Uncle Sam.
Get Disability Insurance:
What happens when you are stuck on a gurney in the hospital and can’t work for a few weeks? How do you pay your rent or continue to get paid? Relying on your emergency money isn’t ideal, as that will instantly deplete your reserves and can place you in a difficult financial situation. This is why having disability insurance is critical. When acquiring disability insurance, be sure you have own-occupation insurance. This guarantees your medical expenses are paid if you cannot continue operating your business.
Start Keeping Track of Your Expenses:
Try joining a bank that helps you manage your money and displays your expenses in an easy-to-review interface. Most digital banks will do this. But, if that’s not the case with your bank, you can download a budget tracking app. In the app, be sure to include your daily, weekly, and monthly expenses. Do this for both your business and personal bank accounts.
Having this overview is the first step to spending less money and getting greater control of your spending habits. If you decide to use an app, you’ll also find that you save time that you would’ve otherwise spent inputting your receipts at the end of the month. There are dozens of expense-tracking apps, so it’s best to search online to discover more details regarding which app would work for you and your budgeting needs.
Bonus Tip: Invest in Your Freelance Business:
Your budgeting efforts should also include reinvesting the money you earn in your work, to grow your business and multiply your earnings. In the beginning, some great investments to make would be in your personal website. You can hire a web designer to work on the backend and a freelance writer to focus on the copy, if you have the skills and can manage the workload you can also develop your own website using WordPress or Wix.
Another great way to invest in your business – if you have the budget for it – is to consider advertising your services. Not only will this multiply your income, but it also means you can budget toward business savings and other goals. The reason you should focus on learning these budgeting tips freelancers should know before you launch a career as a freelancer is that they form the foundation of lasting success. You’ll find it easier to manage your money, reach personal and professional goals, and have more disposable income by increasing your net income.