I’ve been freelancing since 1999, running my own full-time design business since 2002. In that time, I’ve experienced lots of ups and downs in income, expenses, savings, and all around economic inconsistency. Working for yourself is liberating and incredibly satisfying. But running a business through two recessions, the income certainly isn’t as consistent as a paycheck every two weeks. All those factors can compromise financial goals unless you have a plan in place.
Around 2005, I read about percentage savings as a strategy for contract workers. It made a lot of sense to me. I didn’t feel comfortable with automatic savings deductions since my income varied month to month. But I could set aside a percentage of every check for various savings goals. This way, my savings reflected my income level. I saved only what I could when times were slow, and a lot more during really lucrative months.
I started with a really simple spreadsheet to track my clients, anticipated payments, and saving for taxes. It’s evolved over the years to reflect multiple savings goals, but the purpose is still the same: to be simple, flexible, and focused on savings goals.
You can find more detail about the budget below. Good luck and let me know how it works for you! Download spreadsheet here
This budget is set up to keep it simple and give you a broad overview of your income and cash assets. It is set up to keep you grounded in the big picture of your finances and keep you focused on saving.
What helps me stick to saving is to have general pots of money that I use to run my life. Pots that are a bit flexible month to month. Pots that are adequate but not overly indulgent.
And what helps me stick to saving is to see the saving grow and have it tied to the things I actually care about, like travel, retirement, buying a house, building my business.
This budget is also set up for a freelance income. It allows you to project your income based on variable billing. It also sets up savings as percentages of your income, so that your savings grows and shrinks in proportion to your income. Of course this requires manual transfers of money to savings, rather than fixed automatic transfers, but one transfer at the end of the month is pretty simple.
For me, a cash allowance method keeps me on budget. Which means I get a set amount of money per week ($100/week x 4 weeks = $400) to spend and when it’s gone it’s gone. I take that money out of the bank and when it’s gone it’s literally gone. I can also see how much I have left at any given time of the week. If you’re into tracking your ATM/debit receipts and that works for you, go for it. Cash just holds me more accountable. Of course there are exceptions to that because sometimes life happens. But mostly, if I have $100/week to spend on movies, eating out, incidentals, drinks, etc., then if I have a fancy dinner and spend all my money, then I can’t also do a rainy Saturday movie marathon. It keeps my discretionary spending in check each week.
I have a secondary discretionary pot of money: my credit card. Let’s face it, while it’s totally easy to pay for your coffee with cash, some things—like ordering a book online, getting new winter boots from Zappos.com, your recurring monthly internet service or cell phone bill—are just easier to pay for by credit card. I try to keep it to $500 per month for these kinds of expenses. Again, if detailing out a monthly clothing allowance works for you, then go for it. For me, I’ve found that having a general pot for things that vary over time, works better. Keeping it to a reasonable amount keeps me honest. If my credit card bill creeps way up, then I’m being too frivolous and buying too much stuff.
However you set this up, the point is to make it work for you, make sense to you, and strike the right balance *for you* of discipline and flexibility.
Here you can write the client, the job you’re doing for them, the invoice sent, invoice due, and invoice received dates (so you can see what payments are outstanding) and the total invoice amount. I keep the invoice amount to a rounded number, because for me this is about the big picture and round numbers help me see the big picture more readily. By all means, if detailed numbers don’t derail you, then use them.
This section also allows you to project income out (and serves as a loose project tracker.) If you know two months from now that client X will have project Y happening, then you can put in the estimated amount for that and see how much more work you need to fill your schedule and meet your income goals.
I mark invoices that are out in bright green so I can easily see what clients have outstanding bills. And received invoices are marked in darker tan.
The projecting aspect of this has helped me immensely. To be able to estimate 3-6 months out what client projects and income will be happening has helped me feel at ease, helped me see where I need to fill in with other projects and income, has helped me recognize patterns of busy/slow times, etc. And because of the set-up, all this is at-a-glance.
- I want to always be able to pay my taxes. Always. Automatically taking out 25% of every check sets me up to do that every quarter without fail.
- I want to save for retirement.
- I want an emergency fund equal to 6 months of my monthly budget.
- I want money for travel.
- I want to have funds to reinvest in my business, so that when I need to upgrade software, repair my computer, buy a new font or printer, attend a conference, I have money available to make it happen.
- I want to buy an apartment. Tired of renting, I added this goal recently to save for a down payment.
Here’s the juicy bit of this section for me: By really putting my savings goals into hard terms for myself, a few things happened:
- I realized that if I wanted to save for all these big things, then I would have to start making more money. If you need $4000/month to pay your bills and live and you have no real savings goals, then you can work to bring in $4000 a month and that’s that. But if you need $4000/month to live, PLUS you want to save at least as much for your various goals, then you have to start working to bring in $8000/month. Wanting to meet my savings goals actually provided the boost I needed to create more income.
- When I watch the tallies go up each and every month, it keeps me incredibly clear on what matters. When I get off track and have to borrow money back from myself to pay my ballooning credit card bill, thereby reducing my savings, I get really clear on my priorities really fast. And when the numbers get bigger and bigger, I feel more and more motivated to keep going and earn and save more.
- And when I make money, I no longer fall into the trap of spending it all during the boon times. I get a little extra for me, and a lot extra for my savings.