If you work as a freelancer, you might be wondering why you should bother budgeting. After all, freelancers’ income can be unpredictable, so how can budgeting help?
The truth is that budgeting is just as crucial for a freelancer as it is for someone with regular employment.
There are many fantastic “perks” to working as a freelancer, such as scheduling flexibility and more self-determination than most jobs allow. Still, budgeting can be challenging with an unpredictable wage.
However, if you develop the practice of budgeting, you will discover that you can appreciate the benefits of being a freelancer even more. Here’s what you need to know.
Variable income necessitates predictable expenses.
Budgeting for a freelancer is not the same as budgeting for someone with a typical job. When you have a consistent paycheck, you may start with income and build your budget from there.
However, good budgeting demands you keep your expenses as predictable as possible when your payment is uncertain.
Knowing how much you spend on food, utilities, phone, internet service, and transportation each month allows you to calculate how much you need to earn each month to cover those costs.
Once you’ve established a base income that covers your expenses, you’ll be able to more readily estimate how much additional money you’ll have each month for savings, extras, or your retirement account.
Consider the following when calculating your required baseline income:
- Food – except restaurant meals and quick food stops. Tracking food expenses for a few weeks is the most straightforward approach to determine them. Include the cost of out-of-town meals only if you need them for client meetings. Consider eating out and going through the drive-thru as extras.
- Housing – in addition to your mortgage or rent, you must pay property taxes, homeowner’s insurance, or renter’s insurance.
- Utilities – which, admittedly, can be unreliable. Examine a year’s worth of utility stubs (or ask your utility provider to print out how much your bills were over the past year) and note which months have the highest utility costs. If your utility bills vary a lot, discover if your supplier offers budget billing, which averages out your costs and allows you to pay a predetermined amount each month. You’ll have to make up for any differences if you used more electricity than usual at the end of the year, and some utilities charge for this service, so keep that in mind as well.
- Internet and phone – both of which are required for most freelancers who operate from home. You may not have many options for internet service providers, but you should be able to compare numerous phone plans to find the cheapest rates.
- Transportation – this includes auto payments, gas, insurance, and registration fees.
- Medical Expenses – This includes the cost of any prescription or over-the-counter medications you use regularly. Include monthly payments for outstanding medical expenses in your baseline budget if you work to pay them off.
It’s challenging to save money for emergencies, especially if you feel like your entire life is a financial emergency, but start an emergency savings account and contribute what you can.
This may imply preceding particular frills, but you’ll be glad you did when your roof leaks or your washing machine breaks down.
Tax taxes are not deducted from your paychecks when you work for yourself, but you must still pay them. Most freelancers must pay taxes quarterly, and setting up a separate savings account, especially for taxes, is a sensible approach to ensure that you have the money when Uncle Sam needs it.
Although you may not have access to a 401K, you can open an Individual Retirement Account (IRA) and contribute up to $5,500 per year. If you are over the age of 50 12, you can contribute up to $6,500 every year to your IRA.
Traditional IRA contributions are pre-tax, which can reduce your Adjusted Gross Income (AGI) and the taxes you owe on your 1040. The money you put into a Roth IRA does not reduce your AGI, but it is tax-free when you reach distribution age.
Budgeting might be difficult for freelancers, but it is just as crucial for their financial health for people with traditional jobs. Budgeting provides you with the most accurate image of your financial status as a freelancer, assists you in better managing your money, and allows you to enjoy the benefits of being your boss fully.
Source: Mint Intuit
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