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Freelancers: How to budget on a variable income

How spectacular does it feel to NOT have anyone bossing over you? Or to charge your employer exactly what you are worth every single time? Welcome to the freelancers’ world! ….Which also means you’ll be under fluctuating paycheck, variable income, irregular money flow yada yada yada. You get the gist. Welcome to the life of […]

Budget on income

How spectacular does it feel to NOT have anyone bossing over you? Or to charge your employer exactly what you are worth every single time?

Welcome to the freelancers’ world!

….Which also means you’ll be under fluctuating paycheck, variable income, irregular money flow yada yada yada.

You get the gist. Welcome to the life of a self-employed, again!

So. How do you save money as a freelancer? How can you budget when there can be any emergency at any moment?

Here’s how:

How to make a budget (before)

This is what you need to do before-hand:

Go through all your expenses from the past 6 months (minimum) and 12 months (maximum)

Go through your bank statements and while that can be heart-breaking at times, it can really open your eyes on where your money is actually going.

Related: Zero spend challenges are a great money-saver for freelancers too!

Now see all the necessary expenses – food, clothing and shelter

Include your monthly installments (if any), (’cause the bank people wont let you live your life if you don’t, so its necessary).

You probably don’t need to include transportation costs, ’cause you work at home, but if you do, add ’em too.

Now find the monthly average of your necessary expenses.

This is known as your bare-bones budget.

This means if you are in the worst of the holes, you absolutely cannot afford to spend a single penny more than your bare-bones budget.

Now, of course, you cannot stop living life as if you are gonna get pneumonia tomorrow, so make sure to give yourself some slack. You know, for yourself! Got a knack for wine? Soak ’em up!

Now, you need to go through the following steps very carefully:

1. Create a zero based budget

No. Zero based budget (or zero sum budget as others call it) DOES NOT mean your bank balance comes back to zero every single month.

All that it means is that after the month ends, you end up spending all that you were supposedto spend.

Please regard the word “supposed” carefully.

If your budget had room for eating out thrice a month, and you dined out for a couple of times more, (and consequently have to cut on other categories), that means you were NOT SUPPOSED to overspend.

Yeah, I think we are clear on what the word “supposed” actually means.

Let me give you an example. I earn CAD 3000 as an average per month. As per my “supposed to spend” budget, I can safely spend CAD 1800. This means after paying for the necessities, installments and me-time, I have zero dollars to spend anymore.

“But what about the remaining CAD 1200?”

I save it. Period.

Save like you’ve never saved before

I am a freelancer. My income is unpredictable. Therefore, I must save every time I have surplus amount left with me.

Part of it goes towards my emergency fund. Another part of it goes my retirement savings. And if I have any, then I push that towards my student loans.

This is what zero-sum budget means.

Have multiple savings accounts

As a freelancer, it is anyways recommended that you have a separate bank for your personal finances, and one for your freelancing business. This also comes in handy when you are saving money using the zero based budget method.

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