Hello! This week I have a guest post from my friend and financial coach, Sumaya Mulla-Carrillo. She helps artists and freelancers become empowered with their money and build financial sustainability without sacrificing their creative lifestyle.
You can find her on Instagram (@sumayamullacarrillo), or on her blog!
Let’s talk about budgeting on a freelancer’s fluctuating income! As someone who has never held a salaried, 9-5 job in my entire life, my journey through personal finance has been undeniably impacted by the highs and lows of being my own boss. I graduated college with my BFA in Dance, and over the years I’ve held jobs as a professional dancer, restaurant hostess, nanny, Pilates instructor, and finally a business owner. I looked for budgeting advice that would help for my specific situation, and found the resources to be few and far in between. Consider this your go-to guide for budgeting and planning ahead on a freelancer’s income.
Step One: Track Your Income & Expenses
Always start by making sure you know your numbers for the last couple months – pull your bank statements, credit card statements, and comb through to see how much you are spending monthly. And then, even after you do this, continue tracking all of your income and expenses in a spreadsheet, or using some sort of app if that works better for you.
Make categories for each expense. This could be super broad, like categorizing into a “Needs / Wants / Goals” type of budget – for more about how to do this, check out the easiest budget you’ll ever use. It could also be more detailed, if you’d like to track how much you spend on specific items like Groceries, Retirement Savings, Eating Out, Rent, and Shopping. There’s no wrong way to go about this, but make sure you are accounting for every dollar. Every step after this depends on thorough tracking of your expenses, so this one is a must!
Step Two: Determine your “Bare Bones Budget.”
Figure out which of those expenses you absolutely need. This will be things like rent or mortgage, transportation, health insurance, and loan minimums. Add them all up to get your Bare Bones Budget.
I also add in savings goals & retirement contributions. It’s important to consider setting yourself up for success in the future as a need, not a want. When you factor in those savings goals, you’ll be so much further ahead and easily avoid the paycheck to paycheck cycle (or the freelancing income rollercoaster). Wondering what your savings goals should be? It totally depends on where you are in your financial journey. Try to pick only one or two main focuses for your savings goals – it’s so much easier to make progress when you’re not spreading yourself too thin.
This number is now your commitment to yourself – you need to be making at least this much every month. If you’re not, then it’s time to look at your income and see how you can get more clients, sales, contracts, or make money some other way. It may sound scary to commit to making at least this much every month, but one of the most incredible things about being a freelancer is how you get to control your own income. You are resourceful, creative, and you’ve figured out how to make money in a million ways before.
Step Three: Set your Priorities
Now that you know your Bare Bones Budget, it’s time to plan for when you make more than that. It can be common to cut it close to the minimum one month, and then have a very successful and high earning next month, leaving you with hundreds or thousands of dollars to decide what to do with. And if you’re not careful, that extra money can completely vanish from your bank account, with you having no clue where it went.
So, let’s get intentional with your spending priorities before that happens. In this step, you’ll need to set your own personal priorities. What you value spending money on is different from what your best friend or your parents value spending money on. Your spending should reflect your priorities – so get really intentional about what those are.
Here are a couple of questions to ask yourself:
- What do you get really excited to spend money on?
- What do you get anxious, guilty or sad to spend money on?
- If you could have or do anything in the next year, what would it be? And how much would it cost?
Once you’ve done a bit of internal digging, make a plan to reflect those priorities. If you get super excited about spending money eating out, giving gifts, and travelling, and you want a dog in a year, then maybe your priorities look like this:
- 30% of your extra money goes towards restaurants
- 10% goes towards a savings fund for pets
- 10% goes towards a savings fund for gifts
- 10% goes towards a savings fund for travel
- 20% goes to shopping
- 20% goes towards miscellaneous extra spending
Using percentages instead of dollar amounts gives you a lot of flexibility in your spending. I encourage you to track your income and expenses to make sure you’re staying on track. This is also a little freelancer friendly adjustment for the commonly used “sinking fund” budgeting tool.
Allocating your priorities in advance will give you a framework for those higher earning months – and help you know what you can cut back on in the lower earning months. You are the person in control of these priorities. As your life shifts, so will your priorities. Make sure to revisit these often and check if everything feels in alignment with yourself and your goals. Make sure to also allow yourself to have a mix of purchases that bring you immediate gratification, as well as longer term priorities so your spending plan doesn’t feel too restrictive.
And that’s all!
These three simple steps can set you up for financial stability, even as someone who is self-employed. If you haven’t been sure where to even start, and the idea of financial planning with a freelancer’s income is overwhelming and anxiety inducing, I get that. I also want you to know that it is possible! We each have our own journey with money, but there’s no reason you should be sacrificing financial stability for a creative career path.
For more on money for creatives, artists, and freelancers, follow Sumaya on Instagram or sign up for her free resource: Freelancer’s Roadmap to Wealth.