Do you know exactly what your budget is doing?
Are you finding that your business is either behind or just breaking even?
As a freelancer you want to have a profitable, growing gig, and a well-planned finance strategy that you can stick to will help you stay on track and not waste your hard earned money.
I personally like to type all this out onto a spreadsheet that can be checked each month, but there are many different apps out there that can help you create something that will provide reminders, accountability, tracking, and more.
This of course came after I made a few accounting and tax calculation mistakes, which caused me to hire a professional to help me correct my finances.
Piling up debt over business expenses like website hosting, electronics purchases, dining out, ect. is a common struggle for many of us freelancers. But trimming down and knowing the difference between needs versus wants can help you get on a better track.
Bottom line is if you’re spending more than you earn chances are you’re not following a good budget. Or maybe you created one a few years ago and now your income has changed. Whatever the case may be there are a few simple steps you can take get your finances in order and help your income grow.
Audit your spending
You first need to find out is exactly where your money is going. Take a look at your bank account over the last two months and take note of where the expenses are and how much. Ask yourself, “do I really need to be making this purchase or have this membership?” You’ll be surprised to learn about the little foxes stealing your increase fairly quickly. I had a friend once who did this and discovered she was spending about $350 each month just at Starbucks alone! Now that’s a lot of money just for coffee. While this might be good as a tax write-off for business meetings as a general rule you can make your coffee or special drinks at home instead.
Here’s a few free apps to help you get started:
Spend some, save some
It’s a good idea to have a savings account to fall back on in the case of an emergency. Dave Ramsey often talks about this — before he knew how to manage money his credit cards rescued him from trouble. This led to bankruptcy and having to start over in his finances. If you’re a Christian the first thing you need to do is put God first in your finances. Yep, that’s called tithing :-). Start with ten percent — God doesn’t want your money by the way. He wants to know that you trust Him first to be your provider. Once you do that it’s amazing how much more you understand about how to handle what He has entrusted to you.
The next thing to do is to put away some money in savings. Make a commitment and stick to it — decide that you won’t touch those funds unless absolutely necessary. Many people put away ten to twenty percent each time they are paid. Find what works for your budget and increase this as your freelance business grows.
The last thing is to invest in things that will help move you forward such as online classes, a software upgrade, business clothes, ect. As you purchase things that really matter you’ll find that you’re spending less on frivolous items.
Draft a workable budget
After taking a look at what your income and expenses are it’s time to create a ballpark outline that you can increase or decrease as needed. Freelance income can go up and down frequently depending on client workloads and seasons, and so you will want to put together an average number first.
For example, after deducting thirty five percent for your business taxes you would then formulate the total income over the last three months and then generate an average number from that. Then you would outline your actual outgoing costs, which will help you eliminate any unnecessary spending. This can all be done on a spreadsheet or with great apps like these:
Set aside specific spending money
This is sort of like giving yourself an allowance or paycheck and can really work well as far as putting a tab on spending when you’re out — especially at the grocery store! Some people use a specific amount of cash each month and once that has run out that’s it. No more spending! Others purchase a separate cash card that’s loaded onto each pay day or month, depending on how your income works. Find a system that works for you and see if that helps curb going over your personal budget.
Keep a separate business account
If you find yourself dipping too much into your freelance income it may be a good idea to open another bank account just for your business. That way you can transfer what you need to live on as if the account itself is your employer and paying you. Not only does this help track expenses at tax time, but also helps provide a safety net for your main income.
Once you have grown to a point where there is more money coming in this may be time to become an LLC and hire a CPA or an accountant to help you. Many states like Wyoming and Nevada offer low tax incentives for solo business owners, but you will want to get professional advice first before taking this next step. Sometimes it makes more sense to stay an independent contractor — usually if you’re making more than $40,000 a year on your freelance income then that would be a good time to evaluate whether you should become an LLC.
Write down a bucket list
Where do you want to see yourself in a few years? Look ahead to the future and list all of things you would like to have happen in both your business and personal life. As Habakkuk 2:2-3 states in the Bible:
“Write down the revelation
and make it plain on tablets
so that a herald[b] may run with it.
3 For the revelation awaits an appointed time;
it speaks of the end
and will not prove false.
Though it linger, wait for it;
it[c] will certainly come
and will not delay.”
Pastor Chris Hodges of Church of the Highlands pointed out in a Vision conference at our church that keeping a bucket list diminishes the focus of your circumstances and helps you to see what can be in the future. “Dreams have a habit of coming true,” he said. If you’d like to catch the full sermon your can view it here:
Creating a financial plan for your freelance business is not hard to do once you take the time to assess where your spending has been and what you would like it to be. As you create a plan based on your current income you can start to plan ahead for the future in how you would like to see increase.
What works for you in creating a budget?
Got any favorite apps to share?
Share with me below!