As a freelancer, you get the kind of freedom most people can only envy. You pick your clients, you set your hours and work from anywhere. But this freedom has a downside — your income isn’t consistent like in a regular job. You may do great one month, terrible the next. So budgeting is super important if you’re a freelancer trying to save money and protect your financial future.
Managing freelance money is different from managing a steady paycheck. You have to factor in taxes, business expenses and those elusive income swings. A lot of freelancers find saving tough because they don’t have a concrete budget in place. The good news? By using the proper tactics you can seize the reins of your financial situation, save more money and create a nice little cushion for yourself.
This guide will take you through some realistic budgeting tips for freelancers. It doesn’t matter if you’re brand-new or a seasoned freelancer, these tactics will help you spend smarter, save faster and stress less about money.
Budgeting Techniques for Freelancers
But before we dive into the tips, let’s discuss why ordinary budget advice often doesn’t apply to freelancers. With a win or two, people who work at ordinary jobs and just make ends meet can get the same amount of income every month. They know when payday is and how much they will get. Freelancers don’t have that luxury.
Your income could vary wildly. One month, you could make $5,000; the next month, $1,500. You also must pay your own taxes — no one takes them out of your paycheck for you. And you have to account for business overhead, including software subscriptions, equipment and marketing costs.
These idiosyncratic circumstances require budgeting approaches that can accommodate income fluctuations and ensure that you’re setting money aside for taxes, savings and emergencies.
Calculate Your True Monthly Income
The first step to budgeting like a smarty pants is knowing exactly how much money you make in a month. That may sound easy, but it takes a little more finessing when you’re a freelancer.
Look At Your Past Six Months
Run through your last six months of bank statements and income records. Total everything up that you earned during this period of time and then divide by 6. That gives you your average monthly earnings.
If you earned $30,000 in six months, your average monthly income is $5,000. This will be your baseline for budgeting.
Account For Slow Seasons
We freelancers all have high and low periods of the year. Perhaps December is always quiet because clients go on holidays. Or maybe summer is a slow season in your field. That way, your budget will actually represent a reasonable view of the year.
Track Every Dollar Coming In
Establish a basic process for monitoring all of your revenue. It can be a spreadsheet, budgeting app or accounting software. Document every payment you take in — who it was from and for what project. This allows you to see patterns and plan for the future.
Separate Business And Personal Finances
One of the most significant pitfalls freelancers fall into is combining business and personal dollars. This is confusing and makes it difficult to budget accurately.
Open A Business Bank Account
Open a second bank account for your freelance work. All payments from clients go into this account, and all business expenses come out of it. It’s a small thing, but it makes tracking your business money so much simpler.
Pay Yourself A Salary
Pay yourself this same amount each month, one hopeful investor said. Take a look at your average income per month and pick an affordable amount of money to transfer to your personal bank account on a monthly basis.
For example, if $5,000 is your average gross monthly income, you might pay yourself $3,500 per month. The additional money remains in your business account as a cushion for slow months and business costs.
Keep Clean Records
Keep all of your receipts and invoices. Sort by month or category. This takes the headache out of tax time and allows you to see exactly where your money is going.
The 50/30/20 Rule For Freelancers
Perhaps you’ve heard of the 50/30/20 budgeting rule. It says to spend 50 percent of your income on needs, 30 percent on wants and save the remaining 20 percent. For freelancers, this requires some adjustment.
The Freelancer’s 40/20/20/20 Rule
Here’s a more detailed breakdown for those with variable income:
| Category | Percentage | What It Covers |
|---|---|---|
| Essential Expenses | 40% | Rent, groceries, utilities, insurance premiums, minimum debt payments |
| Taxes | 20% | Federal taxes, state taxes and self-employment taxes |
| Business Costs | 20% | Software costs or equipment expenses (including company phone), marketing and professional development |
| Savings & Wants | 20% | Emergency fund/Retirement savings or entertainment/dining out fund |
This division leaves you responsible for all of the various costs freelancers have to cover, while also growing your savings.
Adjust Based On Your Situation
These percentages are starting points. If you live in a high cost of living area, 50% may need to go instead to your monthly bills and everything else would shrink percentage-wise accordingly. If your business has low overhead, you may spend less than 20% on business costs. The trick is to find what works for you.
Build An Emergency Fund First
Having emergency funds is critical for everyone, but it’s absolutely critical if you’re freelancing. With no guaranteed paychecks, you should have some sort of financial cushion to get you through slow or unforeseen moments.
Start With A Small Goal
If saving several months’ worth of expenses feels insurmountable, work smaller. Aim for $1,000 first. This takes care of most minor emergencies, and provides a little breathing room.
After reaching $1,000, work toward one month of expenses. Then work up to three months, and then six months.
Emergency Fund Storage Locations
The money for your emergency fund should go into a high-yield savings account. This also keeps the money from being mingled with your other accounts and easily spent. And, it gets a little interest while it’s there.
Automate Your Savings
Automate transfers from your business account to an emergency fund. Even if you are only able to contribute $100 or $200 a month, regular contributions can accumulate rapidly.
Withhold Taxes Throughout The Year
Taxes are one of the top expenses for freelancers, and they surprise a lot of people. Freelancers usually have to pay both income tax and self-employment tax, which finances Social Security and Medicare.
Set Aside Tax Money Immediately
Every time you get paid, pay yourself 25-30% of that payment right into another account for taxes. Pretend that this money doesn’t exist — it’s already been claimed.
If you earn $2,000 for a project, put $500-$600 right into your tax savings account. What remains is what you really have to spend.
Make Quarterly Tax Payments
Freelancers are supposed to be paying taxes on a quarterly, not annual basis, says the IRS. You might be fined for missing these payments. Here are the deadlines:
- April 15
- June 15
- September 15
- January 15
However, you may pay enough taxes through withholding and estimated payments to avoid a penalty when you file your return after the year ends. Work with an accountant or use tax software to determine how much you need to pay each quarter.
Track Deductible Expenses
There are a lot of business expenses that can lower your tax bill. Keep careful records of:
- Home office space
- Equipment and software
- Internet and phone bills
- Professional development courses
- Business travel and meals
- Marketing and advertising costs
These write-offs can save you hundreds or thousands of dollars at tax time. Learn more about tax deductions for freelancers from the IRS.
Cut Business Expenses Strategically
Freelancers are frequently spending money on things they don’t need for their business. Scrutinizing and whittling down expenses that aren’t absolutely necessary can create some extra cash for savings.
Audit Your Subscriptions
Write down every subscription and software tool you pay for. Be realistic about what you actually use. Cancel anything you haven’t used in the past month or can do without for a while.
A lot of freelancers pay for several tools or think they need a bunch of different project management solutions, design software packages or marketing platforms when they actually only need one. Simply eliminating two to three unused subscriptions can save $50-$100+ each month.
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Earn faster online — learn how: Freelancing Tips To Earn Your First Online Income
Negotiate Better Rates
Negotiate fees for services, don’t pay the first price. If you ask, many companies will offer discounts; especially if you pay on an annual basis, instead of monthly.
Once a year, make one phone call to your internet provider, insurance company and other service providers to inquire whether they have better rates or loyalty discounts available.
Use Free Alternatives When Possible
There are plenty of great free tools for freelancers. Before paying for costly software, see if a freeware package does what you need to have.
Google Workspace, for instance, has free alternatives to many of the paid productivity tools. Most design requirements can be done with Canva’s free edition. Wave offers free invoicing and accounting services.
Create Multiple Income Streams
Your finances are at risk when you rely on one or two big clients. Lose that client, and your revenue plummets. Diversify your income so it’s more sustainable.
Diversify Your Client Base
Keep at least five clients on at all times. That way if you lose one client, it’s not 50% or more of your income — instead, it’s 20%.
Offer Different Services
And if you’re a writer, you can also offer editing or consulting services. Web designers might have their portfolio of designs reviewed by rival web designers. Graphic designers would add other such services as web design or brand consulting. The ability to offer many services draws in more clients and evens out the roller-coaster income typical of freelancing.
Consider Passive Income
And seek opportunities to make money that doesn’t involve trading hours for dollars. This might include:
- Develop and sell digital products such as templates or courses
- Writing an ebook
- Begin blogging with affiliate marketing
- Selling stock photos or designs
- Building a membership site
Creating passive income is not fast, but it gives financial cushion and stability, once you get rolling.
Use The Profit First Method
The Profit First system, by Mike Michalowicz, is perfect for freelancers. Rather than leaving what’s left in your account after you pay expenses, first put profit in, then those other things.
How It Works
As soon as money hits your business account, automatically distribute it into various accounts according to percentages:
- Profit Account (5-10%): Your pay for running a business
- Owner’s Pay Account (40-50%): Your paycheck
- Tax Account (20-25%): This is the money for taxes
- Operating Expenses Account (20-30%): Business expenses
This forces you to run as lean a business as possible and emphasizes saving wherever you can.
Start Small And Adjust
You can work up to these percentages. Make your profit percentages small now and increase them as you reduce costs and grow revenue.
Smart Spending On Personal Expenses
Budgeting: It’s not only for business finances. The same is true for controlling your personal spending.
Cook At Home More Often
Restaurant meals — and takeout — can add up quickly. Not only does cooking at home just a few more times per week put hundreds of dollars back in your pocket every month.
Meal planning makes this easier. Use 30 minutes of each weekend to plan meals and make a grocery list. This avoids the last-minute takeout call with wasted food.
Rethink Transportation Costs
If you are working from home, you may not need an expensive car. Imagine if you could do without a more affordable car, or even — gasp! — public transportation and the odd ride-sharing trip.
Car payments, insurance, gas and maintenance can easily run $500-$700 a month. Eliminating these expenses puts a lot of money out there for savings.
Find Free Entertainment
Entertainment need not be paid for. Explore free options like:
- Local parks and hiking trails
- Free museum days
- Community events and festivals
- Library books, movies, and programs
- Free courses for learning new skills online
That won’t drain your wallet.
Invest In Your Skills And Business
Although it’s important to cut expenses, don’t become so fixated on saving money that you fail to invest in growth. You can invest in skills and business development strategically to boost your earnings, making saving that much easier.
Budget For Professional Development
Put aside funds each year for courses, conferences or certifications that enhance your skills. Superior skills tend to translate into better rates and more clients.
Even just $500-$1,000/year toward education can make a large impact on your earning potential.
Upgrade Equipment When It Matters
If you’re a photographer who has a camera holding back the quality of your work, getting an upgrade might attract clients willing to pay more. If your pokey computer squanders hours of your life each week, that new machine may be worth it.
The trick is to separate equipment you actually need from the things that you simply want.
Invest In Marketing
Little marketing money can bring big returns. This might include:
- A professional website
- Business cards and portfolio materials
- Targeted online advertising
- Networking event fees
- Maybe portfolio pieces or spec work to draw in your dream clients
Keep tabs on what marketing efforts bring in clients so you can capitalize on what works.
Leverage Technology To Budget Your Money
There are plenty of apps and tools available to help freelancers budget. The right technology will save you time and help you gain more insights into your money.
Budgeting Apps Worth Trying
- YNAB (You Need A Budget): Guides you to give every dollar a job before it leaves your pocket
- Mint: Free app for tracking spending, and automatically setting up budgets
- Personal Capital: Excellent for tracking investments on top of your budget
- Wave: Offers small business accounting software for freelancers that is 100% cloud-based with a desktop and mobile app
Invoicing And Payment Tools
Receiving payment faster helps your cash flow as well and it’s easier to budget. Use professional invoicing tools like:
- FreshBooks
- QuickBooks
- Wave Invoicing
- PayPal Invoicing
This software will automatically remind clients when it is time to pay, and they can easily do so.
Time Tracking Software
When you know exactly how much you are making each hour, it allows you to make better decisions on what type of projects to pursue. There are also tools (such as Toggl, Harvest or Clockify) that will keep track of your time for you.
Monitor And Revise Your Budget Monthly
Your budget is not something you establish once and then forget. Keep track of it at least monthly to find out what’s working and what changes may be needed.
Schedule A Monthly Money Date
Choose one day of the month to go over your finances. Look at:
- How much you earned
- What you spent
- If you saved what you intended to
- Upcoming expenses or slow periods
- Adjustments needed for next month
This routine check-in keeps you informed about your financial life and helps yank problems off at the roots.
Track Your Net Worth
Revisit your net worth (everything you own minus everything you owe) every few months. Seeing this number rise is incredibly motivating and lets you track your financial progress over the months.
Celebrate Small Wins
Budgeting shouldn’t feel like punishment. When you reach a savings goal, or survive a lean month with the power of your emergency fund, treat yourself! Celebrating small victories should help you stay with a budget over the long term.
Final Thoughts: How to Get Control of Your Freelance Finances
Budgeting as a freelancer does require more effort than juggling regular paychecks, but the organization is worth it. With the correct financial strategies, you can save even more money, stress a little bit less about your finances and put yourself on the path to creating a secure financial future.
Begin by recording your income and keeping business money out of personal accounts. Change up traditional budgeting rules to fit with the freelance life, build an emergency fund first and never forget about taxes. Pull back on spending that isn’t essential and invest strategically in growth. Leverage technology to simplify budgeting and consistently evaluate your progress.
And don’t forget that you don’t have to adopt all of these tips or tricks at the same time. Choose two or three to get started this month. When they’re habits, throw on more of them. Small consistent changes have a big impact over time.
The freedom in your freelance career is amazing. The freedom that comes with it is second to none, but being smart about your budget allows you the financial security to really enjoy that freedom. Get started today and see your savings swell as you become the person, or couple, you want to be.
Frequently Asked Questions
How much should a freelancer save per month?
Freelancers should plan to put at least 20% of what they earn in a month away, for both short-term savings and long-term savings. But that should include the short-term goal of saving money for taxes (roughly 25-30% of your income) as well as a portion you save for retirement and emergencies (10-15%). The exact dollar amount varies for everyone based on their income level, expenses and financial goals.
What’s the most common budgeting mistake made by freelancers?
The No. 1 error is not saving for taxes. A lot of freelancers spend down what they earn and then get whacked with a massive tax bill they cannot afford. Automatically set aside the amount of 25-30% from every fee you receive into another bank account or savings, so that one day your taxes are covered!
How many months expenses should freelancers save in their emergency fund?
Freelancers should ideally strive for an emergency fund with 6-12 months of expenses, rather than the 3-6 months that is usually recommended for people who have regular jobs. The fluctuating nature of freelance income also means you’ll need a bigger cushion.
Save money or pay off debt first?
First, build a small emergency fund of $1,000 to $2,000 and then aggressively pay down high-interest debt while making minimum payments on everything else. When you’ve cleared high-interest debt, boost your emergency fund to six to 12 months of expenses while paying down debt regularly.
How to budget with income that changes every month?
Budget based on the lowest-earning month you had last year. If you can survive on what is your worst month’s income, anything else is gravy. Park excess profits from good months into savings and business accounts to help cover slow times.
How much of my business income should I reinvest into my business?
Most independent contractors should budget 15-30% of their income for business expenses, depending on their field. Freelancers who work from their service brain (writers, consultants) probably have a lower overhead; those who need equipment or inventory (photographers, designers) might need more.
As a freelancer, is it worth it to hire an accountant?
Then, yes — particularly when you’re getting started or if your finances are complicated. An accountant should save you more in taxes than they cost. At the very least, bring in an accountant to help you with taxes. As you grow, perhaps a quarterly check-in.
How do I make my freelance income higher for easy budgeting?
Raise your rates on a regular basis, choose a profitable niche to specialize in, educate yourself and expand your skill set, compile a good portfolio of work samples and go after current clients for more business, and diversify – meaning create multiple income streams. Even getting a 10-20% increase in income can drastically change how much you’re able to save.
