Easy, Upside-down Budgeting For Freelancers With Fluctuating Incomes! By Bonnie Juettner Fernandes

Easy, Upside-down Budgeting For Freelancers With Fluctuating Incomes! By Bonnie Juettner Fernandes
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DISCLAIMER: The author of this article is not licensed financial consultant. This article details her personal methods of budgeting. Before you begin any financial/budgeting method, or change your methods in any way, you should consult a licensed financial professional to ensure that you are doing what’s best for your financial situation.

As a freelance writer, you may have given up on traditional budgeting advice. Personally, I’ve been supporting myself as a freelance writer and editor since 1998. I’ve written 23 books and countless articles, blog posts, and website copy. I don’t have difficulty finding work, and yet, I often have had difficulty paying my bills.

Traditional budgeting experts tell us to start with our take home income, and divide it into percentages. MSNBC writer Carmen Wong Ulrich, for example, advises that we allocate 30 percent of income to housing, no more than 18 percent to transportation, 14 percent to food/sundries, 7 percent to utilities, etc.

Frankly, she, and all other traditional budgeting experts, lose me the moment they say the words “monthly take home income.” My income is different every single month! The only thing I’m doing right, in terms of traditional budgeting, is that I work at home-so I can proudly say that I do indeed spend less than 18 percent of my budget on transportation.

Self-employed friends (by the way, this problem is not exclusive to writers-I know sole proprietor lawyers who struggle with budgeting every single month) tell me it’s impossible to budget when you don’t have a fixed monthly income.

It look me a long time to figure out how wrong both the traditional budgeting experts and my self-employed defeatist friends are when it comes to budgeting. To make budgeting work, we freelancers have to turn our budgets upside-down.

This means that expenses, not income, MUST drive your budget. No, your income isn’t fixed, but many of your expenses absolutely are: rent, utilities such as phone and electric bills (electricity consumption varies by month, but many energy companies offer a budget plan in which you pay a fixed amount each month based on your average consumption), insurance bills, child support payments, ANY bill that you pay by direct withdrawal out of your checking account, and, to some degree, grocery bills (you’ll have to ball park those, but you can reasonably expect that you will need to be eating regularly).

And, don’t forget your income/self-employment tax. If your income is about the same as it was last year, estimate the same amount will be due and divide that by 12 to see what you should be setting aside to send to the I.R.S. (or your country’s taxing entity).

Add up all your fixed monthly expenses to arrive at the number that should drive your budget: the MINIMUM amount that you need to earn each month.

Yes, now we’ve come to the stressful part of this article. But it’s not as bad as it sounds. Now that you know the minimum that you MUST earn, you can whittle it down to make it more manageable. Divide by four to come up with the amount you need to earn each week. Divide that by five, or by seven, or however many days you choose to work each week, to find out how much you must earn each DAY. Now the number should look a little more doable.

Here are a few other corollaries to keep in mind when using this system:

  1. Remember that you need to earn more than your minimum number if you want to have any disposable income, or ever want to go on vacation. For that reason, it’s wise to start with your minimum number, and then round up considerably.
  2. You’ll want to keep your overhead expenses low (for obvious reasons).
  3. The amounts you need to earn daily, weekly, and monthly should drive your choice of writing projects.
  4. The amount you need to earn, daily, weekly, and monthly, should also drive your price quotes when clients contact you to ask what you’ll charge to write something for them. You can’t afford to, and don’t deserve to, work for less than you’re worth, so, please, charge a living wage for your work.
  5. It helps enormously to chart your income on a daily basis. I now keep a calendar in a spreadsheet format in Google Docs (I searched Google Docs for a calendar template for this purpose-there are scads of calendar templates out there). I note every bit of income that I earn on the calendar, so I know how close I am, at any given time, to the daily, weekly, and monthly amount that I need to bring in. I try to be somewhat obsessive compulsive about this. While I was writing this article, I also became aware of a Kickstarter campaign for a freelancer planner that is designed for this purpose. If you prefer paper and pencil planning, you might want to check that out.
  6. Have a balance of long and short term projects “in the pipeline,” so to speak. You may find, as a writer, that you often are working on longer projects, like books. But, you do have to eat, in the meantime, and you might not get paid until that long project is done. It’s wise to have some sources of short projects that you can fit into short periods of time-things you can turn around in a day or two. Not only do those projects give you additional income, but they help you to keep up the momentum on your daily income charting. It can get discouraging, otherwise, to look at your calendar and have nothing to write down in earned income day after day after day…even if you know that you have a big check to look forward to down the road. Your mileage may vary but, in my experience, long term jobs pay the rent-smaller jobs buy the groceries.

Bonnie Juettner Fernandes is a freelance writer and editor, primarily of educational and reference books and articles. She is also a tarot reader, and often writes articles on topics related to spirituality, tarot reading, and depression. She can be found online at http://www.tarotsalve.com.