Table of Contents
Key Takeaways
- Track income and expenses monthly to create an accurate budget based on average or lowest income.
- Use separate personal and business bank accounts to organize finances and manage business transactions.
- Pay yourself a consistent salary monthly from your business account to cover personal expenses and stay disciplined.
- Build an emergency fund during good business periods to handle inevitable freelancing slowdowns.
- Track income, budget, and save to make freelancing sustainable and manage feast-or-famine cycles.
Not everyone in America works a traditional 9-to-5 job. More people are turning to freelancing, self-employment and the so-called gig economy to either supplement their income or as a sole means of earning a living. More than 72 million Americans now freelance either full- or part-time.1
While working for yourself can provide a lot of freedom and flexibility, it also can mean an irregular income — which makes it difficult to budget. If you haven't already learned to navigate the financial fluctuations that come with being self-employed, here are some tips that could help you better manage your monthly finances.
Estimate & Budget
Although this may seem somewhat obvious, you'll need to know your input (income) and your output (expenses) every month to budget accurately. The first part of that equation is probably the most important, but when you're self-employed, no two months are ever the same.
If you've been freelancing for a while, you likely have several months of earnings you can review to see how much you've made each month. Once you have this information, determine your monthly average income over that period — or the amount you earned during your lowest-earning month — and consider using that number as the baseline for your budget. For example, your monthly average could be $4,000 a month, while your lowest-earning month could be $3,000.
Track monthly expenses and long-term goals to determine what is feasible and have something to reference each month. If your expenses are higher than your monthly average or your lowest month, you may need to cut back in certain areas or figure out a way to earn more. But since your income isn't stable, it may make more sense to keep your expenses predictable — so you have more control over your finances and can meet your monthly obligations.
Open Separate Bank Accounts
Organizing your money when you're self-employed can be vital, both for tax purposes and for your sanity. You should keep your business income and expenses separate from your personal income and expenses.
One way to do this is to open a separate business checking account, where you'll deposit all the income you earn from clients and withdraw money to pay for business expenses like a computer, office supplies, transportation and relevant monthly subscriptions. This separation also will help reduce what you owe come tax time because it'll be easier to see what business deductions you can claim to lower your taxable income.
Pay Yourself a Salary
Once you've estimated your monthly income, calculated your monthly expenses and opened a separate bank account for your business, you can pay yourself a salary. Pick a specific day each month and deposit a set amount from your business account into your personal checking account to cover your monthly expenses and discretionary spending. (You should pay for all personal and non-business-related expenses out of your personal checking account.)
Although your income will fluctuate, having a monthly salary figure in mind may encourage you to hustle more when work is slow. It'll also help give you structure, keep you disciplined and might reduce the temptation to withdraw more from your business account than you actually need each month.
Build Your Emergency Fund
When you work for yourself, preparing for a rainy day is a must. Any freelancer can tell you about the feast-or-famine cycle: For months you may be inundated with work and then several months later work will come to such a halt that you may begin to second-guess your decision to work for yourself.
Unfortunately, this is part of the normal up-and-down cycle of freelancing. Still, you can better prepare for the lean times by saving aggressively — or, at the very least, consistently — when times are good. An emergency fund is essential for freelancing to prevent financial panic when work dries up.2
Set Yourself Up for Financial Success
Even with the irregular income that comes with freelancing, being self-employed and having the freedom to set your own hours and make as much money as your time and talent allow is a huge blessing. But freelancing can turn into a financial nightmare if you don't take the time to track your income and expenses, create a workable budget and save some money each month.
If you are tired of clocking in and out of a traditional job, considering these steps may help make your chosen career path more sustainable, as well as help you better ride the financial waves that come with being self-employed.
Sources
- 2024 State of Independence in America Report. https://www.mbopartners.com/state-of-independence/.
- Why Establishing An Emergency Fund Is Essential For Freelancers With Irregular Income? https://www.outlookmoney.com/plan/why-establishing-an-emergency-fund-is-essential-for-freelancers-with-irregular-income.
