Chapter 3: Budget overview
Budgeting as a freelancer takes a level of attentiveness and an ability to keep business and personal finances separated. Organizing your budgets helps you reach goals and stay prepared for tax time. Budget building considers three expense categories: fixed, variable and non-monthly.
These are the building blocks of the budget and are expenses that you know you’re going to have every single month. They typically don’t have a lot of short-term flexibility. These may include rent or your mortgage, or your bills, cell phone bills and others. Fixed expenses may be attributed to your business so keeping home and business expenses separate is useful.
These expenses include bills you can count on having every month but fluctuate. Examples include electricity, gas, staff and contract employee wages and other expenses. Variable expenses includes any business expense that is not the same each and every month.
These expenses might happen at various times throughout the year. Non-monthly expenses may fall every couple months, quarterly, semi-annually or even yearly. Examples may include web hosting fees, some personal expenses, vacations, wedding attendance expenses, gifts and other things. You want to make sure that you’re planning ahead for those expenses.
The Financial Foundation for Freelancers worksheet does a great job of walking you through how to write out your fixed, variable and non-monthly expenses. Use it as a starting point to build a budget that helps you and your business grow.
Non-monthly expenses take awareness and planning. Take a minute to estimate how much these expenses will be, then divide what is owed by the number of months you have before it's due. Take that number and apply it to your monthly budget. Setting that money aside helps you build the amount you need. And, saving a bit at a time along the way feels so much better than trying to come up with the total amount just before it's due.
Emergency funds are important in your personal life and your business life. You work hard to build the business and life you want – put some of the money you earn aside to build an emergency fund. The goal is to build three to nine months of savings in order to cover essential expenses should anything happen to you. Using a percentage-based allocation for emergency funds is helpful.
This chapter's conversation covers practical budgeting wisdom that will help you organize your personal and business finances.
Separate personal and business budget
Having a separate home and business budget makes things easier on a day-to-day basis and at tax preparation time. Carefully identifying your business versus personal expenses is worth the time.
Your chapter 3 checklist
- Watch the Budgeting Overview video,
- Download the Financial Foundation for Freelancers worksheet, and
- Create separate budgets – one for your business and one for you.