You make a lot of money as a full-time freelancer because you have a lot of unique skills.
You don’t have a “well-thought-out budget” to help you manage your freelancing lifestyle.
There are a lot of articles out there that don’t make sense, and you don’t know where to start.
You can use these budgeting tips to make your freelance money easier to keep track of.
Your financial situation differs from that of a typical 9–5 worker with a steady paycheck. You need to budget to deal with your inconsistent and unpredictable income.
Preparing for these changes now will help you avoid the stress of working out your budget.
Make sure your freelance budget is in order with these five simple tips!
1. Work on Your Expenses, I Mean, Really Work on Them!
As budgeting for freelancers is different, let’s say there are two ways to do this.
The first thing you can do is keep track of everything you spend money on every month, from necessities to something you want. And try to make the most of your money as well.
Suppose your monthly expenses round up to $2400. If your income is up to $3000, your costs should be down to $2400. If you want to make sure you have enough money to meet your needs, you should put 50 percent of your cash into markets, 30 percent into wants, and 20 percent into savings.
*The 80 percent is the total number of needs and wants.
It’s not like you get a salary. Your freelance income is not set. By working more hours or taking on extra projects, you could earn enough money so that you can pay your bills.
All the time, your income has to stay above your expenses.
Moving on to the second option, plan your expenses based on your earnings if you have a certain amount of money each month, but it changes a little.
For example, if your minimum monthly income is $1500, spend every penny of your money, even if you have savings. This is based on zero-based budgeting, which means that every dollar is used for a specific reason.
Using this method will be easy to keep track of and explain every dollar you spend.
2. You Need Multiple Accounts
Separate your costs from your business costs. Your business is its own thing. A separate account should be set up for that. If you spread your money out between different accounts, you will save time.
Open a business account and use it for that. You can deposit your money in this account, pay for your business costs, and pay yourself.
For your expenses, you can open a savings account for yourself. You can also use it to save money on taxes.
As a freelancer, the money you make isn’t set in stone, and it isn’t always paid on time. So, there isn’t a set way to decide how to spend your money.
Because of this, you should open a separate account for both your personal and business money. This will help you keep track of your money, especially when paying taxes.
3. Please Don’t Forget About the Taxes
While it’s good to know how to make more money, it’s also essential to understand how to save money and make more money.
As a Freelancer, you have to pay self-employment tax, which is a lot. People who retire must pay Social Security and Medicare taxes, which they must do to get money.
Then, let’s say you earn $400 or more in freelancing income over the year. In that case, you would have to pay 15.3% self-employment tax. 12.4 percent of that would go toward Social Security, and 2.9 percent would go toward Medicare.
How much would your self-employment tax be if you made $10,000 in net income last year? It would be $1530.
They both pay 7.65% of the 15.3% self-employment tax, so each pays 7.65%.
Self-employment tax is paid by people who are both employers and employees. Fully self-employed people must pay the total amount.
A 0.9 percent Medicare tax will also be added to your income if you make more than a certain amount.
It’s important to know where to save money on extra taxes when you’re managing your taxes. Check-in with yourself. It doesn’t make sense to be your boss if you pay additional taxes.
Because the good news is that you can deduct half of your self-employment tax* from your net income when you figure out your income tax. If you pay the IRS, you can write off the amount because it sees the portion paid by your employer as a business expense.
Because of the 15% self-employment tax, 7.65% of that tax goes to the government.
4. We Need to Talk About Your Luxuries
As you make money, your luxury expenses are essential parts. It’s not based on what you need or want, but only on what you want.
As your income rises, so does your desire to live in a better way. The percentage increase in your income will lead to a percentage increase in the number of luxury items you buy.
There is nothing wrong with spending a little extra money to make your dreams come true. You deserve to treat yourself as long as your lavish spending doesn’t hurt your budget.
One of the best ways to deal with luxury expenses is to break them down into weekly allowances. People who are new to budgeting will find it helpful.
Even though it may seem like a lot of work, you have to be very strict with how much money you spend on fun things.
There are many things you can spend money on that aren’t cheap. With the chance to make extra money so you can spend it on your favorite things, this should come with a note.
If you don’t keep an eye on your luxury spending, you will buy things that are too expensive. At times, even with money. If you do this, your credit score will go down a lot, and you’ll have to pay the money back.
5. Prepare Yourself for the Uncertain
Having a job as a freelancer is about living through the good times and the bad times. There may be times when you can’t work.
You may get sick, go on a quick trip, lose a client, or have any other unexpected costs.
Because of this, you need to make sure your savings account has enough money to cover unexpected events. Three to six months of income should be in this amount.
A few months down the road, you won’t have to worry about money because you’ll be able to pay for things without having to worry about money.
To use your money wisely, you need a plan even though you might want to spend more when you have more money. This is how to do it.
- Save three to six months of income in a savings account.
- To keep a good credit score, pay off any debts and credit card debts that you have.
- Spend your money on different plans that are best for you.
Wait. Don’t Just Stop Here.
Your freelance business needs to have a budget like any other business, and you need to do the same thing.
The best way to make smart decisions with your freelancing income is to have a well-thought-out financial plan based on your preferences and needs.
You can keep track of your freelance income more accurately by giving each dollar a specific use.
Here are some apps that can help you keep track of your money: