How to Make a Budget When Your Income Dips

By Elizabeth Wellington, Contributor, on July 10, 2017

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Although there are no limits to what you can make as a freelancer, there are times when you experience big dips in revenue or unexpected costs that throw off your income. Because of this, learning how to make a budget can be a complex and overwhelming task for freelancers.

Despite my success over the past three years, I still get nervous when I see my revenue dip during the slower months of August and December. So how do I manage these natural peaks and valleys without burning through my savings?

Over the last few years, I adapted a method from Forbes writer Laura Shin that helps me save in proportion to my income. My approach isn’t a one-size-fits-all solution. Instead, it adjusts to my unique highs and lows, helping me to create consistency with my inconsistent revenue. Here’s a simple breakdown that you can apply to your own business, regardless of your specialty as a freelancer:

Bare Bones Budget

First, you want to estimate how much income you make during a slow month. Let’s say you make $3,000 (after expenses) when your business hits a slump. Use that number to create a budget that covers your personal expenses:

  1. Housing
  2. Car payments
  3. Food
  4. Personal items
  5. Insurance
  6. Vacations and short-term savings

Get creative about ways you can stretch that income to cover your basics. For example, eat in more and buy clothes when they’re on sale. Within your budget, make sure you’re setting aside some money for your savings. Experts suggest shooting for 20 percent, although if you can hit anything between 10 and 20 percent during your slowest months, you’ll be in good shape.

But we all face those months where we don’t make enough money to save, let alone meet our basic expenses. Be diligent about watching your spending and limiting debt in these months. Track your expenses using an online app like Mint, or simply use a pen and paper. To make sure I’m not overspending, I carry around a pocket-sized notebook to record my expenses.

With a greater understanding of how you’re spending money, you can figure out the best ways to make it go further. Make it your goal to cover all of your financial bases (even during a dry spell). And when it’s looking like this goal is out of reach, consider raising your rates or conduct additional networking to hit your minimum desired income over the next year.

Escalating Budget

It’s important to allocate income when you’re on a bare bones budget, but you also want to think about where that extra money goes when your business is thriving. How do you spend — or save — that extra income during your successful months? An escalating budget might do the trick.

Let’s say that during a busy month, you make an extra $1,000. You could put $300 of that (or 30 percent of your added income) into savings, and direct the remaining income towards some of the different categories in your budget.

When you make even more money, increase the percentage of the additional income you put into savings. Because you’re already covering the cost of living, these are the best moments to add to your investments and let your money do the work.

For example, if you make an extra $2,000 for the month, allocate 40 percent ($800) to your regular savings and retirement accounts. Next, you can figure out how to divide that extra $1,200. Do you want to save it for a slower month? Maybe you want to put it back into your business? Or you can give yourself a little bonus, and do something fun. No matter what, make sure you’re using your income wisely and consciously. Saving some of that extra cash can help out when those slower months roll around.

When you apply these techniques to your freelance finances, you’ll start to feel more confident. That’s because understanding how to make a budget that escalates your savings when your income increases sets you up for a secure financial future. If you hit any bumps in the road, you’ll have more than enough income to cover your daily expenses and save for your future — without having to skip that vacation you planned.

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