Freelancing and gig work is bigger than ever before, and that is good news for young people and others who want to earn extra money. Whether you view freelancing and short-term gig assignments as a source of additional income or a replacement for a full-time job, you need to budget your money carefully.
Careful budgeting is important for everyone, but it is even more critical for gig workers and freelancers, who do not have a full-time wage to fall back on. Here are 10 essential budgeting tips freelancers and gig workers can use to stay in the black all year long.
- Establish a baseline. Before you can establish a budget, you need to know how much you spend. Track your spending carefully to set the baseline for your new budget.
- Track your income. Freelancing and gig work income can be notoriously uneven, and it is often feast or famine. Track your income carefully to get a sense for how much you can earn and use that in your budgeting.
- Err on the low side of the income scale. If you overestimate your future income, you could end up with a serious shortfall. It is better to err on the low side and be surprised by a good month than the other way around.
- Set up a separate bank account for your freelance and gig work. If you have a full-time job and use your gig work for extra income, be sure to keep those funds separate. This will help with taxes as well as budgeting.
- Put money aside for taxes. The self-employment tax is a fact of freelance and gig work life, and you do not want it to take you by surprise. Estimate what you owe and set money aside for future taxes. If you earn enough, you may need to pay estimated taxes on a quarterly basis.
- Lower your expenses. The lower your expenses, the easier it will be to stay within budget. Look for ways to reduce your expenses and keep more of your freelance and gig work income in your pocket.
- Keep your receipts. One of the perks of being a freelancer or gig worker is that you can write off some of your expenses. Keep your receipts, sort business spending from personal and take advantage of those write-offs come tax time.
- Start a retirement fund. It is never too early to save for retirement, so look into your options. Retirement plans for freelancers and gig workers are among the most generous around, and contributing to one could lower your taxes and help you save for the future.
- Establish a line of credit. In a perfect world, your freelance and gig work income would always cover your expenses, but the world of self-employment is not a perfect one. Establishing a line of credit you can draw on can make the lean months easier – just do not abuse the privilege or get yourself in debt.
- Focus on your most profitable clients. In the beginning, you may have no choice but to take every job that comes your way, but as you establish yourself you will have more freedom. By focusing on your best and most profitable clients, you can grow your business and build up your nest egg.
Budgeting is no easy task, and being a freelancer or gig worker can make things even more difficult. Without a full-time income to fall back on, you are responsible for every penny of income, and you need to make the most of those dollars. The budgeting tips listed above can help you enjoy the fruits of your labor, so you can enjoy the work and still put food on the table.