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How to Organize a Freelancer’s Personal Budget

Not always freelancers, even excellent specialists in their field, manage to become successful in “free swimming”. In addition to hard skills, entrepreneurial skills may also be needed: concluding contracts with customers and contractors, communicating with the tax authorities, and also necessarily maintaining a personal budget.

Let’s look at how a freelancer can put his finances in order, even if so far these are small amounts. They considered ways of organizing a personal budget are suitable for those who earn from $200-$2000 per month.

Where to start

It seems that counting your money is not difficult, especially if the income is not in the millions. But in practice, there are many difficulties with maintaining a budget: the fee comes unevenly throughout the month, some payments go to the card, others to electronic wallets, earned funds are mixed with personal ones, etc.

As a result, there is a feeling that the monthly income was not bad, and there is still not enough money. Below is the algorithm of actions of a freelancer.

1. Calculation of the subsistence minimum

First of all, it is necessary to determine what earnings per month will be considered sufficient for you. To do this, the value of the subsistence minimum is calculated – how much money is needed to live a month without unnecessary expenses, but also not to borrow.

You must write down all your mandatory monthly payments. As a standard, this list will include:

  • rent (if any) and rent;
  • purchase of products;
  • payment of loan fees;
  • travel in transport, etc.

Another mandatory item on the list is emergency expenses. This is the amount in case of an unforeseen situation: the purchase of medicines, urgent minor repairs and more. By summing up all the expenses in the list, you can get the minimum subsistence budget for the month.

2. Determination of the required level of income per month

The total amount is multiplied by three – this will be the amount of earnings at which you can already “sleep peacefully”. For example, the amount of the subsistence minimum is $300, which means that the minimum freelancer needs to earn $800. At first, it may seem that the result obtained is too high, but with the abrupt nature of the payments, this is what is needed. Such an airbag will help to survive difficult times if next month there are fewer orders or other difficulties arise.

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3. Calculation of the desired level of income

To the previously calculated optimal monthly salary, approximate amounts are added for such expenses:

  • buying clothes;
  • entertainment and gifts;
  • visiting the gym;
  • purchase of furniture or appliances and more.

For example, for these optional expenses, another $150 are needed. Then the total amount will be $15 0 + $800 = $950 per month. This is exactly the budget to strive for. If the amount is less than the current total income , congratulations, you are on the right track!

Financial safety cushion

A freelancer cannot count on state severance payments, payment of vacation pay, sick leave and even a normal pension. All this needs to be taken care of independently and now.

Freelance work has differences from the standard rules for the formation of savings:

  • Saving 10% of income per month will often not be enough – you need to deduct at least 20-30% of revenues.
  • Opening a savings account in a bank to make it more difficult to withdraw money and less temptation to spend the reserve fund on insignificant purchases.
  • If there is a mortgage loan, then it is necessary to create a financial safety cushion in the amount of 3-6 monthly family budgets, taking into account loan payments.
  • Think about the options for additional passive income, even a small one, but so that it becomes a stable source of finance for the coming years and in the future.

The amount that will go to the savings fund in our example: $800 x 20% = $160. During the year, $160 x 12 months will accumulate in the reserve fund. = $2000

The funds of the reserve fund are most conveniently stored on a separate deposit card account with the possibility of monthly replenishment and an increase in interest on the deposit.

Plan expenses by calendar

So, all expenses have already been taken into account and the amount that will go to the accumulative fund has been determined. Now another important step is the planning of expenses by dates. Why is this important? Because if, for example, most payments need to be made on the 1st day, and payments for orders are expected only in the middle of the month, then in the previous month, you should spend less.

Manually maintaining such records is not easy, it is better to use special programs. In addition, they will notify in advance about the need to make certain payments. In the calendar, you need to enter all the expenses that are on the list of the minimum subsistence budget.

4 tools to monitor finances

Consider the most popular and convenient services for accounting for the family budget.

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1. Google Spreadsheets

The most affordable and very simple tool for working with various data, including suitable for accounting for finance. You can generate columns and rows with the amount and dates of contributions, expenses, calculate totals and much more. The main advantages of Google-sheets:

  • are provided free of charge;
  • work on any platform;
  • allow you to create tables for your requirements.

The main drawback of the tool is the lack of built-in payment reminders.

2. EasyFinance

A convenient solution for planning income and expenses on a smartphone, well suited for accounting for money in small and micro businesses. Advantages of the application:

  • convenient visualization of the current budget;
  • synchronization with Google calendar;
  • automation of data entry by bank transfers.

Disadvantages of EasyFinance: the mobile application is only paid (for the browser – free).

3. Coinkeeper

A popular application for freelancers that allows you to predict expenses and form a budget. Main advantages:

  • availability of a free version;
  • automatic determination of the category of expenses;
  • the ability to set spending limits in different categories.

Among the shortcomings is the lack of an option for tax accounting and payment of contributions to the budget.

4. Money Lover

This program allows you to keep under control all your personal finances, and is also convenient because you can work in it both from a PC and from a mobile application. It will notify about the excess of the budget, remind you of the upcoming mandatory expenses and allow you to open access to the accounting to other family members.

Advantages of Money Lover:

  • free version of the program;
  • visualize your budget with charts.
  • the ability to create your own categories of expenses;
  • convenient management;
  • option to recover deleted data.

The disadvantage of the tool is that some advanced features are available only in the paid version.

We recommend using one of the mobile applications of these programs – it will be more convenient to enter data and there will be fewer problems with payment reminders.

How to plan income

So, the goal is set – in our example, this is a stable minimum of $800 per month. Now we need to calculate how much now on average cash receipts come during this period. If it’s the same or more, then it’s time to set a new financial goal. If less , you should restore order in affairs and deal with:

  1. Analysis of the current situation. For example, after calculating all the expected revenues for the month, it turned out that now it is $900, and from previous calculations it is clear that you need to earn $800.
  2. Search for options to increase income. Based on real resources (free time, skills, experience), you need to choose one of the options: increasing the cost of services or finding more customers. As an intermediate option, you can stay with your old customers by expanding the list of tasks.
  3. Calculations. It is necessary to divide the expected earnings of $800 by the current $150, it will turn out 2.4. This means that in order to achieve the desired amount per month, you need to either find 2-3 more customers and leave the previous prices for your work, or gradually increase the current price tag by about 2.5 times.
  4. Compiling a task table. Another way to plan the required level of income is to draw up a table with current tasks and affairs that you will be engaged in. For example, you can offer customers services for additional site content, targeting, presentation layout and so on. All these tasks (together with the expected payment for them) are recorded in the table. Thus, you can see real ways to increase your earnings.
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At first, the planning process may seem boring and tedious. But when it is possible to achieve the first set goal, then there will be a real excitement. And over time, the necessary amount for the regular budget will accumulate in the bank account.

Analysis of falling incomes

If there are fewer orders or customers have begun to abandon the services of a freelancer, analyze the situation. Possible causes:

  • lack of necessary skills;
  • a drop in the quality of work due to a large workload of projects;
  • incorrectly built time management.

Be sure to analyze the problem and optimize your activities. For example, slightly increase the prices for work – this will free up time to search for new orders, fill the portfolio. It makes sense to undergo additional training to find large customers.

Results

Summing up, we note that a freelancer for successful activity needs:

  1. Make a real minimum and desired budget for the month. The minimum includes only mandatory payments, the desired one includes additional expenses for entertainment, repairs, recreation, etc.
  2. Plan expenses by dates, fill out a calendar with reminders in one of the applications.
  3. Plan revenues, if they are not enough, make a table of tasks with possible options for increasing the budget.
  4. Regularly deduct 20-30% of earnings to the reserve fund for savings for passive income in the future.
  5. Analyze each drop in the level of income, improve your skills.

Over time, you can begin to draw up an annual budget, where the costs of annual rest are laid, as well as plan professional growth along with an increase in income.

Shubham

Written by Shubham

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