One of the questions I get asked the most as a blogger and freelancer is how the hell I get by with managing freelance income from writing, blogging and consulting.
Truth be told, I’ve learned several lessons the hard way as it pertains to freelance income. Every once in a while, I still get hit with another lesson. Like when I didn’t realize that I’d reached a new tax bracket because I was making a lot more money. This caused me to not save enough for taxes and have to pull money out of my emergency fund.
I’ve also had some other hard lessons. Lessons like not having enough money in an emergency fund for unexpected oral surgery, spending some unnecessary cash on my business and leaving myself with not enough to cover groceries, still struggling to save enough money to get my own place.
I’m going to be honest, learning to manage freelance income is a huge pain in the ass for just about every self-employed person on the planet. This is especially true within the first few years of business when things are rocky. It is not easy to budget when your income isn’t fixed.
The good news is I have gotten much better at it. I’ve learned by watching colleagues and reading up on what they do. I’ve learned by having open communication with my accountant. And I’ve learned simply through trial and error.
In this podcast, I’m going to lay out some of the strategies that have worked for me as they pertain to managing freelance income.
Strategy #1: Focus on the positive.
There are actually some upsides to having freelance income. You may not see them when you’re first starting out, but as you begin to maneuver running a business and you see revenue starting to increase, you begin to realize that managing variable income isn’t totally terrible. You just have to keep your eye on stuff.
Here are some of the advantages of having freelance income:
- If you want to make more money, you can. No need to ask your boss for a raise. No need to go through red tape. Just put in a little extra elbow grease, raise your rates or make some extra sales calls. I personally find this incredibly empowering, especially when I’m working toward a big financial goal.
- There are resources to help you. Plenty of people have been managing variable income for a long time. Many of those people have gone on to write books or create resources. The book that has helped me the most as it pertains to managing variable income is The Money Book For Freelancers, Part-Timers and the Self-Employed.
- It forces you to take an active role in your finances. When you have freelance income, you don’t have the luxury to guesstimate or check out. This may seem like a bad thing, but it’s not. Personally, for me, it’s been the one thing that has helped me manage my money better. Most of all, it literally forced me to stop being afraid of numbers. This never would’ve happened if I was getting a regular paycheck every two weeks.
Strategy #2: Get clear on your baseline.
The key to managing freelance income is to know the minimum you need to bring in each month to cover your baseline expenses. I take it a step further and add savings goals, taxes, retirement contributions and anything I may want to do that requires money. With all this in mind, I know I need to bring in an average of $6,000 each month (though I always shoot for more).
Strategy #3: Go on regular dates with your budget.
I sit down with my both my business and personal budget quite often. I do this for two reasons. First, it helps me see exactly where my money is going. Second, I use it as an opportunity to see where I can make some cuts and therefore save money.
For example, I realized I wasn’t using as much data as I was paying for on my cell phone plan so I switched it. In doing so, I’m now saving myself $10 a month. That may not seem like much, but these little things do add up.
Like I mentioned earlier, you don’t have the luxury of checking out of your finances when you have freelance income because you’re never quite sure what you’re going to bring in each month. That’s why it’s important that you run numbers on a regular basis.
Strategy #4: Keep track of where your income is coming from.
I once asked my accountant what he saw as some of the biggest mistakes business owners were making as it pertained to cash flow. His response was that many business owners don’t have the proper strategies in place to collect payments. This could look like not accepting online payments and not keeping good track of who owes them money.
This begs the question, how can you get better of managing freelance income when you don’t even know how much money is coming in and from where?
Fortunately, there are tons of cost-effective online tools that can help you keep track of all of this stuff. One such tool is Freshbooks which provides user-friendly invoicing services. You can also automate invoices and late payment reminders so that you never forget to send them out. Click here to try Freshbooks free for 30 days.
Strategy #5: Prioritize emergency savings.
While everyone should be focused on emergency savings, those with freelance income need to pay extra close attention to how much money they are putting away. The reason being that one month you can make $10,000 and the next month you might make half of that because you’ve entered a slow season (summer, for example, is a slow season for me because everyone is on vacation).
By prioritizing savings when you’re experiencing plentiful months, you’ll be better able to ride out the lean periods of your business.
If you don’t feel confident enough in your savings abilities or feel like you don’t have any money to save, I highly recommend checking out Chime. Chime offers you the ability to save money automatically, so you don’t even realize you’re stashing money away!
Resources Mentioned In This Podcast Episode:
- July 2018 Income Report
- How to Pay Off Debt After an Emergency
- The Money Book for Freelancers Part-Timers and the Self-Employed (Amazon affiliate link)
- Video Tutorial: How to Go On a Date With Your Budget
- Freshbooks (affiliate link)