Budgeting is a crucial step in successful financial planning. It is simpler when one is employed and they, therefore, have a clear idea of what they will make by month end. However, freelancers, the self-employed and those who live off commissions do not share in the luxury of certainty of income as theirs will vary from period to period.
With the growing uptake of non-traditional jobs in all sectors, payment procedures are different and currently, for most freelancers, the uncertainty is not solely on the amount they will make that particular month but also on when they will get paid. Opinion: The Deception Of The Gig Economy
Calculate your baseline
Being aware of what your essential bills are e.g. food, rent, and clothing is a starting point that is completely necessary for your planning. Having this information will also help you in planning on what type of jobs to take up especially those that have a safety net and certainty of payment. This will also ensure that you understand the minimum pay possible that you can agree on. This is your bare budget which can be created from your spending history for a couple of months.
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Account for taxes
As someone without formal employment, the burden of tax remittance lies solely on you and therefore it is important that as you plan this is well accounted for. The estimate can be obtained by calculating your average tax payouts for the last 6 months and then also making sure you set that aside in your budget. Taxes are inevitable and it is costly in the long run if you avoid them, however, it is possible to legally reduce your tax burden.
Other expenses and create a miscellaneous category
A miscellaneous category is to be safer if other expenses pop up in the middle of the month. The other expenses here include everything else that is not entirely ‘essential’ but that which you consume month to month, for example, your wifi bill. Having this on paper or your worksheet ensures that your planning is easier and tangible.
Build an emergency fund and savings buffer
Notably, some months are going to be better than others. The savings buffer, especially for your recurring bills, ensures that you can keep surviving during the tough months. The emergency fund is for when the unexpected happens like an absolute lack of gigs. Finances: The Importance Of An Emergency Fund
This is created from the months that bring in more money than the rest and therefore there is a surplus amount even after your savings. Additionally, a separate savings account can be created to keep sending your surplus income there when it is available after of course contributing to your emergency fund and your bills savings account. Finances: When You Should Use Your Emergency Fund
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Allocate yourself to a fixed salary
It is paramount that one pays themselves a particular salary. This is achieved by having all your income flow into one checking account and allocating a percentage of it as your monthly salary. The salary here can help in planning and also ensuring that you have extra spending money on luxuries and the like.
Rely on the zero-sum income technique
Essentially, the implication here is that you use last month’s income to pay this month’s expenses and so on and so on. This also means that in the case of simultaneous ‘dry’ months, one can have the safety net of their savings and emergency accounts.
Budgeting is important, it is like a roadmap for your finances.
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