How I budget with irregular freelance income
I had big plans to start this article off with a witty song lyric about making money but then so many songs came to mind that I couldn’t pick just one! So, if you want some lyrical inspiration to help you bring those dollar bills in, here’s a list of songs about making money to kick things off.
As a web designer/developer, I’m part of the freelance and contractor economy. I quit my salaried job a few years ago to go travelling, worked for a few startups, then finally branched out on my own. At this point in my career, I’ve pretty much done it all! As such, I have experienced many types of payment in exchange for my work so I know how important it is to create and follow a budget.
Freelancing can be the best job in the world, but it can also be stressful with all the ups and downs. One of the biggest learning curves that all freelancers face (no matter the industry) is how to handle irregular income. Some months you could be rolling in cash where as other months will be much leaner.
I know that money isn’t always the most popular topic to discuss with friends and co-workers so let’s get a little weird and discuss it with strangers on the internet instead!
I am a huge believer in creating and following a budget, especially as a freelancer, so I wanted to share my methods with you. Be sure to grab my free personal and business budget templates for freelancers below - they're what I use every day!
Without further ado, here are four strategies I use to budget with irregular freelance income.
Know baseline expenses
Answer me honestly: do you actually know how much money you will spend on living expenses every month? Most people can ballpark a number but unless you’ve sat down and reviewed your expenses properly, you won’t know the exact number.
When I plan my monthly budget, I tally up both fixed and variable expenses for my personal life. This includes:
- Health care (MSP)
- Groceries & home stuff
I also tally up the fixed & variable expenses for my business. This includes:
- Squarespace monthly/annual fee(s)
- Email Service Provider (read: Why I made the switch to Mailerlite)
- Google Apps
Curious to know what tools & resources I use to run my business? Check 'em out here!
Knowing the total amounts for both of these sections is crazy helpful. I know I have a little bit of wiggle room in certain areas (e.g., food & transportation) but generally I can expect that each month will look fairly similar.
That being said, I always take the total amount and add a buffer of a few hundred bucks to it.
Let’s pretend that your base monthly expenses are $1500 (LOL I wish), I would add a buffer of $200 for a total of $1700. This means that when you’re planning out your monthly budget as a freelancer, you know you need to bring home AT LEAST that much money every month to keep a roof over your head. It goes without saying, however, that living at the bare minimum is not sustainable so you should always be aiming to bring in more money than that.
While we’re on the topic of knowing your base monthly expenses, I also make sure to keep track of what is deductible. My business is set up as a sole proprietorship and I always keep track of expenses that I can write off (If you’re Canadian, here’s some info from CRA), either in part or in full. I encourage you to do the same if you haven’t already!
I’m not an accountant (duh) so if you aren’t sure what you can and cannot write off, I suggest you speak to a professional.
Have an emergency fund
Having an emergency is necessary for anyone and everyone but as a freelancer, it is critical. Whether you dip into it or not, you should always have an emergency fund for peace of mind in case the worst should happen.
That being said, don’t touch the money in your emergency fund! It’s for (real) emergencies only so paws off. When you’re starting out it can be tempting to “borrow” from your emergency fund to top yourself off but unless you actually pay yourself back, it’s not being used correctly. I like to keep my emergency fund separate from my regular or other savings accounts as well, and this process has worked for me so far.
Depending on your comfort level, projected earnings and how much you have in general savings, your emergency fund size will vary. Most people keep at least 3-6 months in their emergency funds and I agree with that amount.
Yes, some of that money could “work harder” for you if it was invested or something, but personally I think it’s important to have access to liquid cash if you ever need it.
If you’re thinking about making the switch to full-time freelancing, I cannot stress enough how important an emergency fund is. While you’re still enjoying the security of an employer, beef up that emergency fund as much as possible so that you can confidently transition to freelancing!
If you’re already freelancing but don’t have a full emergency fund, get on that asap!
Forecast and plan ahead
The world of freelancing is infamous for the feast or famine cycle. As much as possible, I try to forecast the upcoming month(s) to see how much money I can expect to bring in.
Most freelancers know how the next month or two will look but unless you’re totally booked out months in advance, the future could be unclear. If this is the case, it can be hard to know how much money will come in.
Forecasting can be hard depending on the type of work you do too. For example, let’s say you take one two web design projects per month at a fixed rate. It’ll be easy to project how much money you’re going to bring in that month. However, if you mostly work on website maintenance or one-off web design/development projects, it will be much more challenging to predict how much work you’ll get and how much money you’ll be able to bring in.
As much as possible, I try to see what current and prospective projects I have lined up. This can include design and development projects, consulting sessions and one-off website work. I look ahead because then I can see if I need to secure new or additional work, either through lead generation or cold emails.
Another thing I have to consider when planning ahead with my budget is seasonality. It’s the nature of the game that some months and seasons will be more profitable than others, whereas others will be less busy. Along those lines, I also make note of planned vacation time since I know I won’t be working then (and therefore won’t be bringing in money from client work).
Diversify your income streams
Have you ever heard that most millionaires have 7 income streams? I hadn’t until a few years ago and once I did, I was like, of course they do! Most people get rich for a reason and that’s usually because they plan ahead and think strategically.
The idea here is to diversify your income streams so that you have money coming in from different points at all times.
As a freelance web designer/developer, your diversified income streams could look different depending on how you set it up. You could do a combination of:
- Client work (e.g., website design & development projects)
- Products (which you sell on your website, etsy, creative market, etc.)
- Consulting sessions
- Speaking engagements
- Events (participating in or putting on your own event)
Having different income streams is great because if one area is a little lighter, you can beef up the amount you earn by leaning on other streams instead. It also means that if one stream dries up, you aren’t left scrambling because money is still coming in from other places.
This is something that I’m still working on, if we’re being honest. Up until now, most of my business has been through design and development projects with irregular consulting sessions thrown in. However, I’m working on several digital products to diversify my income and I’m super excited to see how this grows over the next few months. I plan to list these products for sale on my website as well as other platforms to get the most of those new audiences. I have never been paid to do speaking engagements either but who knows what the future holds!
Another thing I want to point out about diversifying your income is that it can also help you out when planning ahead with your budget. We mentioned above that certain freelance work can be seasonal and there will always be months that have less client work. In those cases, you can push a little harder on the other income sources (e.g., promote your products more heavily) to make up for that.
It’s really fun thinking of all the different ways you can earn money and the potential income streams related to your business as a freelance web designer/developer! However, I will say that if you want to move the needle, you need to take those plans and put them into action if you want to make real money from them.
Let’s do this!
At the end of the day, money can be a stressful thing but if you plan properly, it shouldn’t be terrifying. As a freelancer, there will be ups and downs and some months you’ll earn a heck of a lot more money than others. That’s okay and totally normal! Just be sure to prepare your budget and give yourself a buffer to make up for those dips.
I want to make this as painless as possible for you so if you haven't already, be sure to grab the personal and business budget templates below. They're what I use all the time and are super helpful if you're a freelancer dealing with irregular income!
Now I’d love to know, are you a freelancer? How do you handle your money? Do you follow a budget and if so, how do you account for irregular income? Leave me a note in the comments!
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