How to Budget as a Freelancer
What do you do when you don’t even know how much you’re earning this month?
I was inspired to write about this after watching a YouTube video on the topic from The Financial Diet. My main takeaways from the video were Chelsea Fagan talking about:
- Practicing a two-tiered budgeting system where she would have different budgets for the months she made more and the months she made less.
- Raising her freelancing base rate so that she could afford her necessities with fewer projects
While I agree with her to a degree, I have had a slightly different experience which I think will be useful to my fellow freelancers who are struggling with their finances.
Let me preface this by saying that I saved up the equivalent of 6 months’ salary before I delved into freelancing, so that gave me a bit of leeway in experimenting with my budgeting. My boyfriend had also just moved into my apartment at the time so he was paying a small share of the rent and utilities.
Now that’s said, let’s dive into it. I’ll touch on some mistakes I made when I started living on a freelancing wage and how I sorted them out.
Living on a Fixed Budget as a Freelancer
My Mistakes
When I first became a full-time freelancer, I committed to paying myself a fixed salary each month. It was less than what I used to earn at my full-time job but was still much more than what I was making freelancing. But at the time, I figured I would course correct soon enough and I needed the fixed salary for my financial commitments (rent, utilities, family, food, etc.).
I stuck with this for around 5 months and realised it was just not working. If I was lucky, some months I would be paying myself double of what I was earning — most months I barely made a third of that sum. It was not financially sustainable at all and watching my savings dwindle was honestly a terrifying experience.
Course Correcting
One of the first things I did was to suck up my pride and renegotiate my commitments.
The first person I negotiated with was myself. I slashed my skincare budget, cleared my online shopping carts, and worked out a new budget that was more realistic. I stopped paying myself a fixed salary and focused on a base number — the sum I would need to survive every month. Everything I made over that number went to replenish my depleted savings.
I spoke to my family and lowered the amount of financial support I gave them, with the understanding that it would return to normal when my goals were achieved. I made up for it by sending food and similar items when things stabilised or when I had a bountiful month.
I also spoke to my boyfriend (now husband) and we adjusted our contribution to shared expenses. We went halfsies on all the shared bills and rent. He paid if we ate out and I cooked if we had groceries. It eventually evolved into a system where I cook for us almost daily. That helps cut down on household spending, which is really handy when you have shared finances.
Another tough thing I had to do was to renegotiate my rent. I had been living in my apartment for over three years at that point. My forage into freelancing coincided with the pandemic so work really dried up and it got to the point where I could not afford to pay myself anymore, much less pay the rent in full. That was when I picked up the phone and asked the landlord for a discount, which they graciously agreed to. Every dime I save from the rental deduction goes into replenishing my savings.
The “One Trick Pony” Freelancer
My Mistake
Before I left my job, I was moonlighting as a transcriber and translator for a few years. I had built up a customer base and work was consistent. That gave me the confidence to quit my job and work as a full-time transcriber.
Unfortunately, the moment I kickstarted my freelancing career the Covid-19 pandemic hit. All my work opportunities dried up within a couple of months. I was so focused on being a transcriber that I did not pursue other forms of income, even though I had diverse skills.
Course Correcting
After a few bad months, I stopped waiting around for transcribing gigs and proactively searched for other job opportunities. I examined my other skills, passions, abilities, and contacts.
While the transcribing industry has recovered somewhat, I now have a wide range of work that I do. I’m an English and Mandarin tutor, a journalist, a translator, a voice-over artist, and an occasional baker.
I get a different amount of work each month and it’s varied enough to be a good balance between stressful and exciting. The pay also varies of course, since I charge differently for the gigs mentioned above. This brings us to the topic of base rates.
Addressing Base Rates
I think this has to be a whole other article, but it’s something I’d like to touch on briefly since I mentioned Chelsea Fagan’s video in the beginning. She spoke about increasing her base rates so that she can afford her necessities with fewer gigs.
On one hand, that is definitely doable. You can increase how much you charge per hour or per project so that you can work less. In fact, I do practice this sometimes. The payoff is when I am offered these high-paying jobs, I can take care of all my monthly commitments with a few hours’ work.
However, it is rare that someone is able to consistently and successfully increase their freelancing rates, especially in this competitive environment. (“Successfully” in this case refers to engaging a client.)
It really does depend on what your expertise is. Unfortunately, based on my experience, there are certain jobs (eg. graphic design, copywriting, translating, etc.) where you can’t charge more than perhaps 20% to 30% of the market rate unless you have already made a name for yourself in the industry.
Therefore, my advice is to either specialise and become famous for your speciality, or diversify. When you diversify, you can afford to charge more for certain skills.
Takeaway
I had a plan before I quit my well-paying full-time job, but plans can’t survive change. (Well, in this case, plans can’t survive a pandemic.) I had to commit to a hard reset and readjust my expectations to what freelancing life looks like for me financially.
It looked like this:
- No fixed salary. Bills got sorted first, then I paid myself with one luxury on a bountiful month. Every extra dime went to savings for a rainy day.
- Renegotiate commitments. Thicken up that face and face facts. If you can’t afford it, admit it and work something out. (P.S. I wouldn’t advise skipping insurance or rental payments.)
- Diversify skills. Instead of focusing on one thing I’m good at, I tapped into my other skills and abilities to maximise my earning potential.
About a year and a half on my freelancing journey, I would say my financial situation is definitely still fluid and sometimes it causes me quite a boatload of anxiety. However, I am in a much better place than I was at the start because I took a stand early on when things weren’t working out as I had hoped.
I hope the information I shared has been helpful for you. Budgeting on a freelancer’s salary is never easy, but it can be done and you can do it!
