How to Budget as a Freelancer: A Real-World Example
Tips to get started.
Ever wonder what other freelancers spend their money on?
Sometimes, we get a glimpse when fellow freelancers share info about their spending, like their tech stack (mine is here, for example). But overall, full-time freelancers prioritize spending in different ways. Like, how much are they paying themselves? Do they have any savings? Do they spend money to reinvest in their business?
As a former banker, I created a budget for myself very early in my freelance life. (It might have been Day 1, but who's keeping track?)
Here's a breakdown of my monthly budget by percentages, which you can use as a guide to develop your own budget. In order to get started, you only need your average monthly income. These are very broad categories, but I've added some details about what's included in each category.
Paying myself: 70% of monthly income
By far, my largest expense is paying myself. In the U.S., I used to operate as a sole proprietor so this was much more informal — I would simply withdraw money from the business on the 15th and last day of the month. Like creating a paycheck for myself.
Now, I operate as a Sub S corporation, so I'm required to pay myself a salary (and use a payroll provider). I also contribute to a solo 401(k) for retirement and I include my retirement contributions in the "paying myself" category.
I also include required taxes in the "paying myself" category, since the amount is based on my taxable income
Savings: 15% of monthly income
For me, savings has always been a top priority. I believe that part of building a sustainable freelance business is based on a steady cash flow (money coming into the business and money going out). I try to standardize getting paid as a freelancer, but sometimes I have irregular income. So I put money in savings. That way, when I have a slow month, I can draw money from savings to keep my cash the same.
I maintain three separate savings accounts:
- Emergency/Vacation Fund: Contribute when I have extra cash; withdraw when needed. Also, I use a vacation savings calculator so I can "pay myself" when I take time off
- Tax Savings Account: Money set aside specifically for tax payments
- Business Development Account: Money for professional development (like investing in a course or something to grow the business) or a major business expense (like purchasing a new computer)
One way to get started is to set a specific savings goal, like maintaining $5,000 in an emergency fund.
Legal and professional fees: 10% of monthly income
My business has operational expenses that I need to pay every month. Of the total amount, 8% goes to people who help with my business. I have a bookkeeper and a virtual assistant. I also have someone who helps with occasional tech support, like maintaining my website. I also have to pay my payroll provider (Gusto) and my 401(k) provider (Guideline). Occasionally, I pay someone to help with design assets for my business.
The other 2% pays for dues and professional subscriptions. I'm a member of the National Writer's Union and pay monthly dues. I also pay for subscriptions to a few news publications that I need to access regularly for my client work. I also pay for business liability insurance, which is included in this category.
If your business is new, you may not have a lot of fees in this category. For example, I didn't hire a virtual assistant until I was about two years into my business. Even now, I could do the work myself, but my time is better spent elsewhere.
Apps and subscriptions: 5% of monthly income
I pay for a lot of solopreneur tools and apps, but most are so inexpensive that they're a fraction of my overall monthly income. I think this is true for a lot of solopreneurs.
Even if you're trying to keep your expenses low, I recommend investing in tools if they save you time. The math makes a lot of sense. Calculate how much you earn hourly (even if you don't charge hourly). Let's say the app or tool costs $15 per month and will save you at least one hour of time. Do you earn more than $15 per hour? If so, the tool is worth the cost.
I also have to pay for things like my domain and website provider (Ghost). I include these costs in my overall budget for apps and subscriptions, though these expenses are annual, not monthly.
Additional monthly expenses
A few other expenses come up, though they're not recurring monthly expenses.
I pay for office supplies, like pens and notebooks, that I use for work.
I also have to pay merchant fees for credit card processing. This is basically a deduction from my overall income. If a client pays me $1,000, I might have to pay 1.5% in a processing fee. But this is a necessary part of running a business since I need to accept credit card payments.
Anna Burgess Yang
Getting started with your budget
While I've shared percentages here, IRL my budget is based on hard numbers.
For example, I have to pay the same amount every month for the apps I subscribe to and my payroll. Those costs don't fluctuate based on how much I earn, and I consider them essential expenses. But because I put 15% in savings, I can easily adjust that number each month if I need to.
I keep a Google Sheet of my projected monthly business income and all of my fixed expenses. I also have to keep track of a few regular expenses that are paid annually instead of monthly.
Separate business and personal account
One of the first things you need to do when setting up a budget is to separate your business and personal finances. If everything is flowing in and out of a single account, it can get messy very fast. Not only is it harder to manage your budget, but this becomes a nightmare when you're trying to file your tax return.
Open a separate bank account and credit card for your business. You can even find a bank for freelancers that has added features you might use (like built-in invoicing). Put all of your income in the bank account and charge your expenses to your credit card.
Not only does this keep your bookkeeping clean, but you can more easily compare your monthly expenses to your budget.
Not sure where to get started with a client proposal or contract? You can check out this free checklist and download a template to use.
