The Freelancer’s Guide to Budgeting

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Fear of finances keeping you from working for yourself? One freelancer shares how manages her budget with a variable income.

In my experience, freelancers focus on the exciting stuff: finding interesting clients, working from exotic places, and being challenged by working across numerous industries. But what deserves equal focus is the less sexy stuff; the accounting and finance angle of your work from both a business and personal finance perspective.

After all, there’s nothing more restricting (and less exciting!) than being broke because payments you counted on were cut off, or you end up owing Uncle Sam more than you anticipated on tax day.


Most employees take monthly salaries and pay slips for granted. Every month, your employer gives you a paycheck with tax, insurance, and 401k payments already excluded. The paper trail is created and kept by the finance or HR department.

As a freelancer, you have no such luxury. Many freelancers don’t know how to account for their income (and sometimes, they don’t even know how to bill for payments).

How to Bill Your Clients

I bill all my clients at the end of each month using PayPal. I require clients to pay the PayPal fees, so the service is free for me to use. Although this takes slightly more tracking on my end, since I need to bill for the previous month’s PayPal fee in the next monthly invoice (or invoice simply for PayPal fees if it’s a one-off project).

Another option is to simply incorporate PayPal’s fees into your contract, though I find that more difficult to manage, as PayPal fees vary based on the payment method the client uses. You also have the option to simply “eat” the chunk PayPal takes.

Whatever you choose, PayPal is ideal because it tracks invoices, incoming payments, overdue payments and quarterly earnings—and it’s a globally familiar brand name.

I then use a secured Google Drive for Business spreadsheet to track my earnings. This spreadsheet (perhaps repetitively) tracks client invoices, and thus, my income, also noting if a client is overdue, is paying in installments, or left off a Paypal fee that needs to be paid at another time.
This spreadsheet easily sums up how much I make bi-annually or annually, and I can make notes and other amendments that I can’t in PayPal. The spreadsheet can also be exported to a CSV or XSL file, which is helpful if you want to share it or access it without accessing Google Drive.

There are, of course, other ways to track your freelance income, including other invoicing and tracking software such as FreshBooks and FreeAgent. However, these don’t offer my clients a way to pay in the same application and they cost money.

Since I’m more or less a one man show, I don’t need the fuller capabilities these other applications offer, such as time tracking and account reports. If/when I grow my business, however, these are options I would consider.

How to Track Expenses

I have another spreadsheet that tracks my expenses.

At the beginning of each month, when the previous month’s invoices are due, I withdraw all of my fixed costs, such as my savings, retirement, and insurance, and then pay the rest to myself as a salary. I use the same spreadsheet to track personal and professional expenses, but I color code personal and business expenses to keep them separate.

I find that having a business credit card (which you can have if you register your business) is critical. It helps me separate my personal and business expenses, budget each month (I can look back and see what I’ve spent money on for my business, and budget accordingly for the next month if the expense is repeated), and easily track business expenses I want to write off on my taxes.

It is also useful to demonstrate the separation of my personal and business expenses; if the two were commingled, I would be unable to demonstrate the difference between my business and personal assets, and if I were to ever be sued, my personal assets would be at risk.

How to Prepare for Tax Day

Speaking of taxes, your freelance income could be subject to social security tax. I personally file quarterly taxes, and receive a refund at the end of the tax year if I’ve overpaid. It’s better than paying a penalty for underpaying.

I always speak with an accountant when I have questions about filing taxes, because the laws are pretty convoluted and messing with the IRS is never a good idea!
As I mentioned, there is software that keeps track of freelance income, perhaps better than my homemade method. However, I like having complete control over what I feel to be the lifeblood of my business, so I prefer this method to any other solution.


I find the personal finance aspect of freelancing much more challenging than the professional finance side of things. Mostly this is because my business expenses are minimal and most of what I purchase are monthly subscriptions that are easy to budget for (and are tax-deductible). My personal finance is a bit less straightforward.

Managing a Budget on a Variable Income

My biggest challenge as a freelancer is knowing how much money I will have from month to month. I make most of my clients sign agreements that commit them to working with me for at least one quarter of a year, and build 30-day termination clauses into my contracts so I have at least a month’s notice if a source of income is going to dry up.

However, that makes long-term financial planning somewhat difficult. While this certainly is the nature of the freelancing beast, it can be extremely stressful. I plan my personal budgets two months in advance, making sure that I have enough freelance work for the current and next months to pay my bills and cover any necessary upcoming expenses.

I also make sure I earn enough to save at least 10% of my monthly income. Having a bulky savings account helps give me a little peace of mind. I track my expenses closely in the same spreadsheet that I track my business expenses, listing the total income I’ll make from my various clients every month. I use a simple subtraction forumla that subtracts my expenses from my total income, and I have Google Drive for Business on my phone that allows me to update this tracker every time I make a purchase. Therefore, I always know exactly how much money I have left for the month at any moment, which keeps me accountable and never stressed about how much money I do or do not have.


I note personal expenses by not highlighting them, and business expenses in blue. This also gives me flexibility to add other income sources if they come up, such as money made from listing my apartment on Airbnb.

Being a freelancer can make money matters stressful, but when you’re organized, I’ve found that you have the freedom to make informed decisions about your professional and personal finances. My methods may not make sense for everybody, but they have served me well—and I hope they help you, too.

How do you manage your money as a freelancer?

Originally posted on: Career Contessa
Photo: Natalie Franke
Copy: Khaleelah Jones

Career Contessa

Career Contessa is an online platform facilitating honest conversations by real women about work and life—to help you achieve fulfillment and balance in both.

  • http://oliviaadamspr.com Olivia Adams

    Wow! These tips are super helpful! I’ll definitely be referencing these as I grow my freelance business. Thanks for sharing!

    • http://ladypreneurleague.com Porsha Thomas

      Perfection! So glad to hear it. Thanks for stopping by, Olivia!

  • http://melissaalam.com/ Melissa Alam

    Amazing article!

    • http://ladypreneurleague.com Porsha Thomas

      I, for real, love it. Such good info!

  • http://instagram.com/captivatingcalligraphybyla Loren Chestnut

    Great tips!! Thank you for sharing!