How to Budget When Your Income Varies as a Freelancer

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PUBLISHED BY Alwin Wong / December 15, 2020

Budgeting for Freelancers – Accounting for Irregular or Variable Income

Budgeting Advice for Freelancers and Gig Workers, From a Freelancer


Budgeting Expenses for Freelancers


Creating and sticking to a budget is challenging enough for the average worker, but that challenge becomes even more difficult when you want to create a budget based on income fluctuations month to month.


Trust me, I know from experience. As a self-employed freelance writer, I’ve spent the last 8 years figuring out how to manage my finances with a balance sheet mostly filled with question marks, and an income graph that looks like a mountain range. I made a lot of mistakes in my first few years, but now that I’ve got things (mostly) figured out I’m hoping my experience can help others avoid the same.


Here are a few pieces of advice I believe are vital for anyone trying to learn how to budget with a variable income.


See Your Paycheck for What it Really Is

The first big mistake most make when starting a career with fluctuating income is getting overly excited when a big check arrives. Independent workers like myself spend weeks or even months working away, living on a shoestring budget, chasing down payments and waiting for that big deposit to arrive, so when it finally does it’s easy to get carried away.


Your brain will naturally switch from famine to feast mode, as you start daydreaming about all the things you can do with that extra cash. Before you get too excited, however, it’s important to see that paycheck for what it really is. After all, that money isn’t all yours; some of it is necessary to cover your costs and expenses, some of it needs to be saved for income and sales taxes, and some of it needs to be put aside for a rainy day since access to credit isn’t always possible via banks.


Mint App AccountsMint App Bills Reminder


I’d recommend using online management tools such as Mint to build irregular income budget sheets or track everyday expenses. Remember, those of us with fluctuating incomes don’t always know when the next big check will arrive, and that last payment might have to last a lot longer than you think.


Know Your Minimum Monthly Operating Costs

Costs Priority diagram

The most important thing to keep in mind when putting together a budget as a freelancer or gig worker is your minimum monthly operating costs, or the absolute minimum you can live on each month. That includes overhead, monthly bills, food costs, and any upcoming expenses.


Your minimum operating costs should really be just that: an absolute minimum. That means your lowest possible food budget, even if it means eating the same meal every day, and shouldn’t include unnecessary extras, like buying new clothes.


Once you know the bare minimum, you can begin to consider how you will use the funds you earn beyond that threshold. For example, if you can cover all your expenses with $2,000, and you end up earning $2,500 after taxes, then you can consider diversifying your diet, or buying that new pair of jeans with the leftover funds.


Don’t Wait for Tax Season

Chart of freelancer's salary

When you work full time, your paycheck is yours to spend freely, as taxes have already been deducted. That’s not the case for independent workers.


In my first year as a freelancer, I failed to save for tax season and was hit with a CRA (IRA in the US) bill in April that almost drove me out of business. From then on, I’ve been sure to take the necessary proportion out of my income each time a payment arrives and put it aside for tax season. For example, if your expected tax rate is 25%, be sure to put aside a quarter of every penny you receive throughout the year. The same is true for those who collect sales taxes; make sure you’re putting that money aside because it’s not yours to spend.


As you advance in your independent career you may also find it beneficial to put some of that savings away in a high-interest savings account or an investment portfolio. After all, just because you’re hanging onto the government’s money all year doesn’t mean you can’t earn a little interest on it. Just be sure to park it somewhere safe, and that it still is accessible when you need it.


Always Keep a Rainy Day Fund

As a freelancer, I’ve always found it useful to separate my earnings into three different accounts, with one dedicated to my operating costs, one dedicated to taxes, and one designated for a rainy day. The rainy day fund is to help me through those periods when work slows down, or my clients are taking their time sending payment.


Furthermore, as self-employed workers, most of us don’t have any kind of safety net if we need to take time off work for an emergency, such as an injury, illness, or family crisis.


A rainy day fund can be vital to those earning unstable income through low cashflow periods and provide peace of mind. Personally, I find it best to have two months’ worth of minimum operating costs set aside when budgeting for freelancers.


Use the Tools at Your Disposal


Freelancer budgeting

It’s taken me some time to figure out how to budget as a freelancer. When I first began in 2013, there were very few tools for independent workers, but that’s no longer the case. Since then, countless products and services have been created specifically to support the independent workforce, including Moves.


If you need help building a budget for irregular income, start with this budgeting template.


Whether it’s figuring out how to budget when your income varies or finding the best lenders for self-employed freelancers, it’s best to stay proactive in your career. Keep up to date with our new products and services and find more useful advice for managing your finances as an independent worker, by signing up for the Moves newsletter!

Alwin Wong

Alwin is the Growth Manager at Moves and a part-time freelance photographer. With the rise of the gig economy, he is excited by a world where people can have greater flexibility over their work and challenge the norms of having a traditional 9-to-5 job. Alwin is also an avid travel enthusiast and Toronto Raptors basketball fan.

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