27 Oct

Top Lessons from Freelancers about Budgeting

If there is any single group of people that knows all that there is to know about budgeting then it’s probably freelancers. As a freelance worker, you never quite know how much money you’re going to get in any given month. Even if you have a nice set of steady gigs, there’s always something that can go wrong with freelance work and payments. You need to make sure that you stick within a budget and create a savings account for yourself in order to enjoy some sense of financial stability despite your freelance status. That’s why freelancers are such a great resource if you want some information about what a budget is, how to create one and how to live within that budget.

Here are some of the top lessons on budgeting from freelancers who have written on the topic:

• “A budget is nothing more than estimating costs and income. It is your task to review your budget from time to time and adjust it based on real numbers.” – Chris Stirling. This great statement reminds us that budgeting is all about making sure that you have the information that you need to use your income wisely. You have to know what your real income is and what your real expenses are. People who live frugally usually have this down but there are still a lot of people out there who are terrified to look at the reality of their finances. You can’t start to budget until you know what you’re working with. If you realize that it’s just a matter of estimating what you spend and what you earn then it can make you understand that approaching budgeting isn’t as scary as it might sound.

• “Even if your financial situation is frightening at times … not budgeting is not the way to peace of mind. Not knowing is more frightening than knowing”. – Mrs. Micah. This is great advice if you’re one of those people who is a little bit afraid of budgeting because you’re not sure if you’re going to be able to live within a budget and make ends meet. It’s worse not to know what your realistic budget is because you end up stressed out and worried anyway. Plus you can dig yourself into a really deep financial hole if you’re not honest with yourself about your money. At least if you know the situation then you can deal with it head on. The hardest part of creating a budget is taking that first step to make sure that you do it.

• “Fight the temptation to adjust your monthly income upward because you’re having trouble making the budget work. That’s setting yourself up for failure.  Keep cutting expenses until the numbers work.” – Lynnae at Being Frugal. Many people get frustrated when trying to create their budget because they simply don’t have enough money coming in to cover the expenses that they consider to be necessary. They start to look for ways that they can gain more income to cover the expenses. While it’s great to earn more income if you can, banking on it is not a good idea when creating your budget. You need to keep cutting expenses and finding ways to live even more frugally until your real budget covers your expenses. You can always adjust your budget later to enjoy some of those things that you cut out if you really do start earning a higher income in the future.

•  “If you are cutting back on expenditures, don’t eliminate entertainment expenses entirely. If you make yourself miserable, you are more likely to get down or upset, and end up on a spending binge.”  – Kori Ellis. One of the things that you have to realize about creating a budget is that it must be realistic. You want to make sure that you can live within this budget. If you have to cut back on spending then you want to do it in ways that still allow you to live happily. Sure, cut back on entertainment if you need to but save some money in that part of your budget as well. Find a way to cut back on utility bills or other expenses rather than getting rid of your entertainment budget entirely. One of the things people hate about budgeting is they think it means that they have to live without any fun in their lives. That’s not true. Budgeting is all about allocating where your money goes in a way that makes your life comfortable but financially sound.

• “The perfect budget is a myth … Each budget you make and the mistakes you make with it serve as input into your next budget to make it more accurate … Always remember, personal finance is all about direction, not perfection.” – Gather Little By Little. It’s important that you create a budget. It’s also important that you understand that you’re going to need to adapt that budget over time. Your income will fluctuate (especially if you’re a freelancer!) Your expenses will change. The budget that you create doesn’t have to be perfect as long as you’re willing to stick with it, adapt it as needed and learn from your mistakes as you go along. Take budgeting seriously enough to do it but not so seriously that doing it really stresses you out. It’s just a helpful tool and one that you can keep learning about as you do it.

• “Using my minimum monthly income instead of my average monthly income gives me a safety buffer.” – JD at Get Rich Slowly. When you figure out your budget, you’ll be looking at the income that you’ve taken in over the past 12 months. This tells you how much money you have to work with for your budget. Most people will add up the year’s worth of income, divide the number by 12 and use this average to figure out what their monthly income is for their budget. Instead, use the minimum monthly income that you’ve earned during those twelve months as the baseline for your budget. This way you’ll have a budget that gives you some flexibility and usually results in savings at the end of the year.

• “Whether you are feasting or starving financially, it’s important to remain consistent in your spending and saving.” - RumbleBug. The recession has caused a lot of people to have a “feast or famine” mentality when it comes to their money. They feel like they’re barely struggling to get by all of the time so if a big chunk of money happens to come in at once then they spend it immediately as a sort of gift to themselves for surviving the rough times. This is a mistake. Although there will be times that you’ll splurge on little things (or even big stuff like travel), you really want to try to remain consistent with your spending and savings regardless of any extra income that comes in. Don’t feast just because you can. Put that money away for a rainy day and stick within the budget that you worked so hard to create.

• “If all of your bills fall at the same time each month consider contacting the billing companies to set up a different invoice date.” – Deb Ng. Many people struggle to make sure that all of their payments are made on time. If you make late payments then you end up getting charged fees which can put you over your budget. You can avoid this problem by timing your bill due dates to coincide with when you get paid so that you have the money that you need to pay your bills when the bills come due.

• “Save in several different formats.” – Kathryn Lang. Some people prefer to keep all of their money in one account in order to streamline their budget. That’s okay but many others find that it’s better to save money in different places to accommodate their budget. Freelancers may receive monthly payments via PayPal and save them to allocate weekly or bi-weekly transfers to a checking account. This makes it less tempting to overspend from the checking account because there is less money in there at any given time. Freelancers may also set money aside into a specific savings account for emergencies or for paying big annual expenses such as property taxes. As long as you’re good with record keeping then it’s sometimes best for your budget if you use multiple accounts.

• “I like to keep a minimum of 4-6 months of income on hand in case of economic drought.” – Lucas Krech. Everyone who creates a budget should include a certain amount of money that is going in to a savings account every month. Your goal should be to save up at least 4-6 months worth of income (based on the income that you’ve calculated for your budget). This will allow you to live within your budget even if you become temporarily unemployed which is an issue everyone has to have some level of concern about these days.

• “And don’t forget to budget for your retirement. Many people think Social Security checks will be enough to live on during their retirement years, but Social Security likely will only cover about 40 percent or less of your expenses at that time.” – Loella Dotterer Haskew, CPA. People who live frugally might have themselves covered as far as most of this stuff goes. They know what their income is, they live within their means and they set aside some savings for emergencies. But is that enough? Don’t forget that you need to plan for the future as well which means figuring out how to work a retirement savings into your budget. Once you’ve got a standard budget under control, you’ll want to move forward with adjusting the budget to accommodate for these major future financial needs.

• “Budgeting will only work if you’re on board. This means that you absolutely must hold yourself accountable!” – Jeffrey Way. Finally you need to realize that simply creating a budget isn’t going to do anything for you if you don’t use it. You need to hold yourself accountable for continuing to track your spending and live within your budget. If you can’t do this on your own then you may want to consider working with a partner (a spouse, a financially smart friend or a freelance finance group online) to hold one another accountable for sticking within a budget.

These freelancers have had to learn how to budget because their variable income demands it. Whether or not you work as a freelancer, you can learn a lot about the budgeting mindset from these folks!

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