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Freelance Financing: How to Budget When You’re on a Variable Income

Freelancing Career

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It is estimated that within the next ten years, 50 percent of American workers will be freelancers.

The growing popularity of freelance work is made possible by advancements in technology. We can complete the same kind of work from home or at a coffee shop as we would in an office setting.

This type of flexibility is desirable for most people because they can work on their own schedule and from anywhere they want. But working as a freelancer has its downsides, too.

Freelance work can be extremely generous, or you could be starved for work for a couple of months. That's why it's important to plan ahead and create a cash cushion that you can dip into in difficult months.

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Freelance workers have a more variable income due to inconsistent work availability or working different hours each month. This can make creating a stable budget difficult, especially if your income changes drastically from month-to-month.

This setback means that freelancers need to budget differently than office workers. Keep reading to learn everything you need to know about how to budget as a freelancer!

Image by Steve Buissinne from Pixabay

Look at How Much You’ve Made in Previous Months

While your income is variable, you can gather enough information to create a general outlook on what your monthly income is. Take a look at the last two years of your freelance monthly income.

What was the most you made in a month? What was the least you made? Now take the average income amount of the last two years.

The best route is to create a strict budget based on an average of your five lowest income months. This will allow you to pay your monthly bills without stressing whether you have enough money to do so.

Your budget should address your monthly bills such as rent/mortgage, car payments, insurance, groceries, activities, etc.


Image by Diana Caballero from Pixabay

Create a Cash Cushion

Freelance work can be extremely generous, or you could be starved for work for a couple of months. That’s why it’s important to plan ahead and create a cash cushion that you can dip into in difficult months.

We talked about creating a budget based on your low-income months. With that budget, you should have plenty of months where you have a lot of extra money left over.

Some of that money should go towards a cash cushion. A cash cushion is extra money in your checking or savings account that is used if you need help paying bills down the line. It’s the money from your productive months that exists to help even out your income on the less productive months.

Consider Zero-Sum Budgeting

A zero-sum budget means you spend every dollar that you make each month. This doesn’t mean you mindlessly spend every dollar on things you don’t need. It means you have a specific plan for every dollar you make.

In order to zero-sum budget, you’ll use the previous month’s income to pay for this month’s expenses. For example, let’s say you made $3,000 last month. You’ll use $1,000 on your rent due for this month, $1,500 on your credit card bills due this month, and the rest can be invested or used as a cash cushion if you need it.

This strategy allows you to maximize each month’s income. You won’t spend more than you made the previous month, and you can adjust your spending based on what your income was last month.

Image by Megan Rexazin from Pixabay

Look at Your Spending Habits

Examining spending habits is something everyone should do when they make a budget. But it’s especially important for people who are living month-to-month on a variable income.

You may be able to get away with reckless spending on months where you have a ton of work, but you’ll end up kicking yourself for not putting that extra money into your cash cushion during the slower months.

So take a close look at your monthly credit card bills. Where is most of your optional spending coming from? Do you eat out three times a week? Do you see that you make late-night, impulse purchases on Amazon?

If you have a problem with eating out too often, try to scale it back to once a week. You can save hundreds of dollars a month by eating at home instead of going out to a restaurant.

If you find yourself making impulse purchases late at night, this may be due to decision fatigue. This means we have less control over the decisions we make at night and are more likely to act impulsively.

If this sounds like you, make a rule to wait until the next morning to make a purchase and see if it’s something you really need.

By questioning whether or not we need to spend money on something, we can reduce reckless spending and save a ton of money each month, which can go towards your cash cushion!

“Many people are giving up working for an employer altogether, and are working for themselves on a freelance basis. There are many advantages to this, including the possibility of flexible hours and control over what clients you choose to work with, and getting out of what could be a hostile work environment.” – How to Building Your Career Working Freelance Jobs

Know Your Self-Employment Loan Options

Freelancers can find themselves in a financial pickle just like anyone else. If this happens to you and you don’t have the cash cushion you need to pay for expenses, consider your personal loan options.

Companies like Bonsai Finance offer loans for self-employed and freelance workers, so read up on your options and get the financial help you need.

Make the Most of Your Variable Income

Being a freelance worker gives you the freedom to work as much as you want, create your own schedule, and work anywhere in the world. But you’re also left with more responsibility when it comes to budgeting.

By using these tips, you’ll be able to make the most of your freelance work and forget about the stress of having a variable income.

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