Setting Freelance Budgeting Goals: A Step-by-Step Guide

It’s the world of freelancing, and with the comfy PJ’s and waking up while the rest of the worlds at lunch break, financial uncertainty comes with the territory. Unlike 9-5’ers with a paycheck that comes in certainty, freelancers typically get Yo-Yo’d from month to month. Given this instability, many a freelancer have been swallowed up by the sea and forced into the morning commute. Fear not fellow swashbucklers—setting budgeting goals can help secure financial stability and keep those PJ’s on! Let’s walk through the what’s what of creating a budget and the goals that come with it so we can fend off the 9-5 together!

Why Setting Financial Goals is Crucial for Freelancers

First things first—why set financial goals at all? You might be thinking, “I just need enough to cover rent this month.” Totally fair! But without clear financial goals, you might find yourself frantically trying to cover bills, dealing with surprise expenses, and wondering why your bank account looks like it’s on a diet.

Visualize financial planning as having a GPS for your money—it keeps you on track, ensures your spending matches your income, and helps you save for both fun stuff (like that dream vacation) and not-so-fun stuff (like your car throwing a tantrum or the surprise of a root canal). By setting financial goals, you're crafting a blueprint to transform chaotic freelance income into a reliable flow that works for you, not against you.

If you're new to freelancing or a seasoned pro, having financial goals puts you in the driver's seat of your finances rather than letting them cruise around with the steering wheel. This is especially important when your income is as unpredictable as a cat on catnip!

Step 1: Assessing Your Freelance Income and Expenses

Calculating Your Average Monthly Income

Before setting any goals, it’s crucial to know how much money you’re actually making each month. Sure, your freelancer income might resemble a roller coaster more than a peaceful country road, but figuring out your average monthly earnings will make budgeting much less of a white-knuckle ride.

Start by rounding up your pay stubs, bank deposits, or client invoices from the past six to twelve months. Add all of that up and then divide by the number of months. Voilà, your average monthly income—a number that’s your financial foundation! Don’t leave any stone unturned; include all your income sources, whether they’re from freelancing gigs, side hustles, or even that novel idea of passive income.

Remember, this number isn’t carved in marble. Some months you’ll be the home run hitter, and other times, you are riding the bench and wondering when the next at bt will be! That’s why it’s a best practice to plan for both the highs and the lows. Buckle up and let’s smooth out that ride!

Identifying Your Fixed and Variable Expenses

Next up—let's tackle those expenses! As a freelancer, you’re juggling a circus of both fixed and variable costs, so knowing where your money disappears is key to keeping the show running smoothly.

Fixed expenses are your consistent, unchangeable monthly pals: think rent, utilities, health insurance, and yes, those beloved subscriptions like Spotify and Netflix that keep you sane. Variable expenses are the wildcard: groceries, transportation, business supplies, and those spontaneous nights out.

Freelancers, listen up: keeping personal and business expenses separate is a must. Are you splurging on fancy software that you bought for its cool features but never actually use? Or maybe your spontaneous Uber Eats dinners are munching away at your savings? Using a simple budgeting app or digging through your bank statements can reveal where your money is sneaking off to.

It’s all about striking a balance—so let’s keep those expenses in line and your bank account happy!

Tracking Your Spending Habits

The next adventure is diving into your spending habits. Time to grab those bank statements and get sorting! Are those subscriptions multiplying like rabbits? Those monthly fees can sneak up on you faster than a caffeine craving. And speaking of caffeine, are you turning into a regular at your local coffee shop or maybe ordering one too many takeout meals?

By combing through your statements, you’ll uncover patterns that show where your money is escaping the budget. To make this sleuthing mission easier, a budgeting app can do the heavy lifting, tracking every dollar and ensuring none of it can hide in plain sight. Let’s get detective-level serious about uncovering unnecessary spending!

Step 2: Setting Short-Term and Long-Term Financial Goals

Short-Term Goals: Emergency Fund and Covering Living Expenses

First things first, freelancers—let’s talk short-term goals. A top priority is building an emergency fund. Life has a knack for throwing curveballs, and with freelancing’s financial rollercoaster, having a money cushion is your secret weapon for those rainy days.

Start by calculating how much you'd need to float your boat for three to six months. But, given the freelance life, aiming for a six to twelve-month buffer might be the smarter play. This stash will have your back during slow gigs, surprise expenses like medical bills, or if that big client decides to pull a Houdini.

Why put this in a dedicated savings account? It keeps temptation at bay—making it trickier to spend it on that spur-of-the-moment shopping spree. Plus, parking your fund in a high-yield savings account means it earns interest while safely growing, so your rainy-day fund is always ready when it’s called up to the big leagues.

Long-Term Goals: Retirement Savings and Future Planning

Now, let’s talk long-term. With all that freedom, flexibility and no “Yeaaah...I am going to have to have you come in on Saturday...”—The one downside is the void left in the employer-sponsored retirement plan. You are in the forest alone as far as retirement savings go, so it’s definitely time to start planning unless you envision yourself freelancing as an 80 year old bingo caller (nothing wrong with that!”!

You may want to ponder opening an IRA (Individual Retirement Account) or start piling on a retirement account that fits what you are looking for. Skipping that pizza night once and a while can add up to big things over the long run, and the earlier you start, the more compound interest will work its magic! Try not to wait until “someday” to start planning for the future, because after all, that beach in Bali sounds about right.

Step 3: Creating a Monthly Budget and Sticking to It

As we went over already (remember all that pirate talk), budgeting as a freelancer is like trying to surf the financial seas. Some days you catch the perfect wave, and other days you wipe out because, hey, that’s life! But with a trusty budget, you can ride smoother even on choppy waters. The mission here is to make your money your ally, not your arch-nemesis.

Designing a Simple Monthly Budget Template

Your budget needs to be a lot like a financial yoga pose: strong yet flexible. Your income might do the cha-cha each month, so your budget should be ready to groove along with it. We’re about to create a budget template so straightforward, even your pet goldfish could follow it—if it could read, that is.

Here’s how to get started:

• List Your Average Monthly Income: First things first, tally up your average income from the past few months. It’s not going to be flawless, but it’ll give you a solid jumping-off point. Channel your survival instincts by budgeting with your leanest months in mind to keep financial stress in check. If you’ve got a trusty budgeting app, it can whip up this calculation based on your past earnings faster than you can say “spreadsheet.”
• Categorize Your Expenses: Split your monthly expenses into neat categories like rent/mortgage, utilities, groceries, and your daily latte habit. Don’t leave out business expenses—it’s vital to separate personal and business finances like they’re unfriendly neighbors. A handy budgeting app can sort all this for you, creating easy-to-track categories and letting you see where every hard-earned dollar is disappearing to.
• Track Your Cash Flow: In the freelancing world, cash flow is as important as your morning coffee. Using a budgeting app that monitors your income and expenses in real time keeps you on top of things month-to-month. Apps like Mint or YNAB can be lifesavers, setting up alerts and tracking your irregular income like an undercover detective, keeping you spending wisely according to your income tides.

Prepare for Financial Surprises: Freelancing is like a surprise party every day, and not always the fun kind. Equip your budget template with a safety net for unexpected expenses—whether it’s a quiet work month or your car deciding it’s had enough. Dedicate a slice of your monthly income to a “rainy day” fund so those financial surprises don’t rain on your parade. Oh and make sure you account for that rusty, trusty credit card.

By putting these bad boys into practice and using a budgeting app to manage your template, you’ll stay one step ahead at all times. Don’t get down about irregular income because a bulletproof monthly budget will help stave off financial uncertainty and maintain control over your personal finance. Chalk one up for the home team!

Prioritizing Business and Personal Expenses

While we are on topic- Because you're your own boss, distinguishing between business and personal expenses can feel as clear as mud. Are those “business lunches” just a fancy way to say you love dining out? Is your home office more stocked than a stationery store, yet you only use two pens?

Prioritize essential business expenses and keep them apart from personal splurges. A little self-control here helps you cling to more of that precious moolah. What are your expense troublemakers? Find them and put them in time out!

Step 4: Adjusting Your Budget for Growth and Change

Reevaluating Your Budget as Your Freelance Career Grows

Ah, the life of a freelancer—today’s gig is tomorrow’s highlight reel. As your freelance empire expands, so should your trusty budget. Landed a mega client and feeling flush, or making the brave leap from side hustle to full-time freelancing? Your budget needs to put on its growth pants too.

Make it a habit to review your budget regularly—quarterly, if not monthly—and update it like a savvy financial DJ. This might mean boosting retirement savings when income peaks, or tightening your belt if a big project fizzles out. Flexibility is your budget’s superpower in this ever-shifting freelance landscape.

Preparing for Future Tax Planning

And let’s chat about everyone's favorite topic—taxes. Freelancers wear the tax planning hat, meaning you should squirrel away around 25-30% of each paycheck for Uncle Sam’s cut. Depending on where you call home, self-employment taxes could sneak up on you like a cat on a stealth mission.

Consider opening a separate business bank account to keep your funds neatly organized for tax season. Joining forces with a tax professional can save you from a case of the self-employed blues, guiding you through quarterly payments, deductions, and other tax mystique. What’s your go-to strategy for keeping on top of this tax whirlwind?

Common Budgeting Pitfalls and How to Avoid Them

Freelancing finances can feel like a real-life game of snakes and ladders, but the sneaky pitfalls are dodgable. One classic blunder is having a spending spree during those high-pay months, only to enter panic mode when the dollar rains turn to drizzle (and then those big business expenses always seem to hit). Keep a flatline budget approach—that way, there are no wild swings into chaos.

And taxes? Don’t let them lurk in the shadows. Quash the tax beast by setting aside funds all year, while keeping business expense funds in their designated piggy bank away from personal piggy chaos. Oh, and your future self will thank you for not ignoring retirement savings. They might seem like a distant land, but even a trickle of savings now can paint quite the retirement paradise later.

Final Thoughts: Staying on Track with Your Financial Goals

Yeah...It may sound like a lot of work, but when you kick start that new and improved system, it becomes as free flowing as a stream. You’ll keep the splurgefests in check, your goals will be that much closer, and you’ll have a plan for the known and unknown.

Use budgeting apps to stay organized, track your progress, and adjust as needed. The goal isn’t to make you King or Queen No Fun, or suck the discretionary joy out of life—it’s to give yourself the freedom to enjoy your freelance career without constantly worrying about money. Stick to your budget, prioritize your goals, and watch your financial future unfold as smoothly as possible.

Now go on, set those budgeting goals and take control of your freelance finances. You’ve got this!