When you’re a freelancer, or your income depends on the number of sales you make (commissions), learning how to manage finances is essential. The idea of managing your own schedules and working on your projects at your own pace is wonderful, but not everything is easy.
The reality is that this type of life comes with seasons without projects, sleepless nights and an insatiable search for good customers. That’s why learning how to manage your income in a way that allows you to live completely regardless of how much you generate month by month is of the utmost importance.
Find out how in this blog. Read on for the essentials of building a budget and infallible tips on how to manage your income and expense efficiently and intelligently.
The first step is to calculate how much money you spend approximately per month. This in order to determine how much work you need at least to survive.
This section is divided into several types, the main ones are:
They are those that occur constantly month by month and you have to comply with them. Some of them can be:
Although not all involve the same amount, they require a monthly responsibility. My tip is to assign an average amount to each of the items of your fixed expenses, using previous receipts and add the totals to be able to establish a realistic variable amount of expense that will actually help you to put together a good budget.
Being a freelancer also means that all the benefits you deserve as a worker, you will have to pay for them yourself. This category includes:
This blog may interest you: What you should know about taxes as a freelance
Variable costs as a freelance refers to expense that is incurred infrequently in the year and are not necessarily repeated. For example, a computer, a desk chair, and a good pair of hearing aids fall into this category. Because they are necessary purchases but that you will only do once every certain time.
Likewise, there are ant expenses, the worst of all. They are those that are not absolutely necessary but in one way or another, happen. You had to work in a cafe and you bought a full breakfast? Did you go shopping with your friend and end up buying ice cream? Were you thirsty and bought a bottle of water?
The ant costs are those small expenses that do not cost to spend because they represent such a small amount that we think does not affect us. But at the end of the year, if you do a recount of everything you spent that way, you’d be surprised at how much savings that represents. So, this is a great area of opportunity to save and manage income well, so keep that in mind.
Are you often tempted to buy a coffee every time you go to a mall? Do you forget to turn off the lights at night? Do you use transportation to travel distances you could walk? Do you spend all your megabytes before the end of the month?
As well as being freelance, your income varies month by month, and your expense also. For example, on holidays or your birthday you usually spend more, just like in Decembrian times. So when it comes to managing your budget, don’t set the same monthly amount, but allocate different amounts according to your events in question.
Although they are not a fixed expense, they occur consistently every year, so it is important that you write them down and take them into account. Some points that can help you are:
Visualize your year and think about what activities you do each week and on the weekends and take into account all you expense to manage them properly and do not take you by surprise.
Like expenses, income also varies, and it is important to determine how much you earn on average or at least. This may vary depending on the time of year or the demand for your work, but if you’ve been working in this mode for a while, you should have a sense of what a year’s income looks like for you.
Now that you know in numbers the two most important fields to elaborate your budget, the next step is to get to work and go accommodating everything in an excel or table.
I leave you my favorite templates here: The best budget templates in Excel
This way, you can compare your income with your expense, and see how much real money your income has left over to distribute in savings, tastes and investments. Don't forget to fill it every time you receive and income or spend money. Create the habit.
With the information above, you can set a minimum amount you must charge month to month in order to live in a dignified way. This should be enough to cover your expenses completely and have something extra for the rest. My favorite rule for setting this amount is:
That is, 50% of your income must go to fixed expense, 30% to the rest of the expense and 20% to savings, debts and investments.
This rule helps a lot since knowing your expenses, you know that in approximation should represent 50% of your income, so you should aspire to earn double your expense.
There are times when those ant expense can be reduced considerably. If you go to a restaurant, don’t order the most expensive drink. If you’re shopping, don’t buy anything that goes beyond what you had planned. If you’re going to a bar, start with beer. If you are going to work in a cafe, have breakfast at home and buy only the drink.
It’s not about stopping going out or shopping, but knowing where to invest the money and trying to save unnecessary expenses. This way you will manage your income better.
You’ll probably be surprised if you ever do extremely well, but the reality is that it doesn’t last forever. As long as you keep that in mind, you can continue to live well and worry-free.
It is said that it is advisable to set aside 10% of our savings for emergency fund, and it has to be equivalent to 6 months of living. This in case things go wrong, you have some money to manage your expenses and calmly look for more work.
Now that you know how much money you need to earn, you can determine how many jobs you need to do per month based on what you charge, and in case you are not reaching a certain minimum amount, apply yourself in the search for new projects.
Remember never to accept more than you can give and that your personal life is also important. So, in addition to managing your income, being calm with your workload and know how to manage your projects is also extremely important.
I hope that this guide and tips have served you to correctly manage your finances as a freelance life and know how to manage your expense and income. If you were interested in this topic, don’t forget to read: