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8 Must-Have Budgeting Tips for Freelancers

Updated on January 17th, 2022

Freelancing comes with a variety of benefits, including setting your own hours and choosing which clients you want to work with on a long-term basis. But it also comes without the predictable monthly income and benefits of a salaried worker. As the sole worker in your small business, it’s important that you find a way to manage your cash flow each month. Here are 20 budgeting tips to help you keep cash flow steady as you build your business.

Understand Your Finances

From the start, you should seek to have a thorough understanding of the money you have coming in and going out each month. Get to know which of your clients will pay on time and which can be expected to be late each month. Also watch your expenses closely and try to find areas where you can make cutbacks and save money each month.

The best thing about this type of awareness is that you’ll better be able to better predict future cash flow. You can’t control your customers but you will likely find many of them behave similarly in the future to the way they’ve behaved in the past. This means you’ll be able to take on new expenses or juggle bills based on when you know additional funds will be coming in.

Set Money Aside

Freelancers can experience extremes in their income levels. One month you’ll see a flood of payments and new jobs coming in and the next, you’ll wonder where everyone went. This can be especially true if your business appeals to a seasonal clientele, drawing more customers during the summer months or the Christmas season. If you have a business-based clientele, you may even notice during the last couple of weeks of the year, your business drops up completely while all of your clients take time off to be with their families.

The best thing you can do to keep cash flow running smoothly is to set money aside during those peak months. This can be difficult when you’re tempted to put money into purchasing new equipment or boosting your advertising budget. Set a goal for yourself to put a certain amount of money into an emergency fund and only tap into it when you need the extra funds. You’ll eventually learn the typical month-to-month patterns and be able to set aside just the amount you need to have in that account.

Keep Expenses Low

You probably spend a great deal of time discovering ways you can bring in more income each month. But slowing the flow of money going out can be much more beneficial to a new business. While there is a tax benefit to having a stack of expenses, it also means you’re letting more money go out of your business.

Over time, comb through your monthly budget and identify ways you might be able to save money. Even though you rely on your phone and Internet to do your work, you still may be able to get a better rate by bundling or switching to a different plan. Occasionally check in with these types of providers, as well as with your bank and payment providers, to identify ways you may be able to get a lower rate or a better plan.

Keep Business Account for Business

Business owners usually set up a separate account for business income. Those accounts are kept completely separate, with the professional paying himself a salary to be able to cover personal expenses. For a freelancer, it can be tempting to blend the two, dropping pay directly into your personal account and living off of that.

When you separate personal from business, you’ll be better able to set a monthly budget, as well as get an overview of your expenditures and income through your bank’s reporting tools. It also changes your mentality, since you’ll think of your business account as something different from your personal account and be much more reluctant to take money from it.

Set Your Salary

As mentioned above, budgeting will be easier if you think of your freelance income as business related and keep it separate from your personal accounts. But unlike a business, a freelancer often relies heavily on client payments to pay bills. Instead of merely dumping every dime you own into your personal account and worrying about taxes on their quarterly due dates, instead set a fixed monthly salary that you’ll pay yourself on designated dates. You can pay yourself on the 15th and 30th, as a business would, or you can set other intervals as appropriate for your household budget and income.

For best results, keep your salary low at first, only taking the money you need to be comfortable. If your freelance business is bringing in $10,000 a month, plan on leaving as much of that as possible in your business account and shifting over only $2,000 or $3,000 every two weeks. This will help you remember to leave money in your business account for paying taxes, while possibly giving yourself extra padding in your account for those months in which you only bring in $5,000 or $6,000.

Plan for the Worst

Disaster can befall any business, including a one-man operation. You could suffer a medical setback that leaves you unable to work for a month or two. You could lose your biggest client, forcing you to scramble to replace the monthly income that client brought in. Or an unexpected event like a natural disaster or family death could take you away from work for a period of time.

Once you have a handle on your budget, set up a Plan B to account for these types of setbacks. If you can set extra money aside, you’ll be in good shape. You could also purchase small business insurance that will protect you in some events. If you’re fortunate to have a personal savings account or an employed spouse that will help offset the loss, you’ll have at least some security, but it’s important to have a plan in place to keep your business running even if the worst happens.

Invest in Your Retirement

As much as you may love your work today, someday you’ll want to retire. Even if you plan to continue freelancing until the day you die, you may not always be as sharp or physically fit as you are today. For that reason, it’s important to begin setting money aside that you can rely on in those later years.

Another benefit of investing in a retirement plan is that you’ll be able to avoid paying some of that money to the IRS. A Solo 401(k) will allow you to move a certain amount of money over each year, safely storing it in a retirement account where it earns interest. You won’t have to pay taxes on that money, saving you when it’s time to file with the IRS.

Have a Line of Credit

There may come a time when you’ve reached the end of your financial rope. You don’t have extra money to cover a slump or handle an unexpected business expense. For those occasions, a line of credit can make a big difference. You can have it in place from the day you open your business bank account and leave it there for emergencies only.

As you choose a line of credit option, make sure you have one that allows you the flexibility you’ll need to handle big expenses and small expenses. Pay particular attention to the repayment terms to make sure it’s something you could pay back in a reasonable amount of time. Otherwise you’ll just be adding more debt to the pile.

Freelancers face extra challenges in trying to survive when income is unpredictable. By setting a budget and making small changes, you’ll be able to prepare for the unexpected and keep your expenses low each month.

Murray Newlands

Murray Newlands

Entrepreneur and Venture Advisor for the Network of Things Fund a Draper Nexus Fund. Newlands received a Bachelor of Laws and he is qualified as a Lawyer. He gained his Green Card by being recognized by the US government as an “alien of extraordinary ability.” Newlands is the author of “Online Marketing: A User’s Manual” published by John Wiley. He is former President of He has been the CEO and Founder of multiple companies

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