1. Set a monthly spending limit
As a freelancer, your clients will always vary. That means your income will also differ monthly. So, how can you create a budget when you don’t know how much you’ll be earning? For a few months, track your income. After three months or so, you’ll have an overview of how much your income averages per month.
For instance, in the first month, you earn P8,000, then in the second month, you get P10,000, and for the third month, it’s P9,000. Based on this example, you should create a budget with P8,500 as your limit. If you ever earn more than your limit for the month, you can set aside that money to pay off your debts or put it in your savings or retirement fund
2. Track your expenses
The key to proper budgeting is knowing where you’re spending your money. You can keep track of your living costs in multiple ways like a digital spreadsheet, a notebook, or a financial app.
Take your average monthly spendings on necessary recurring expenses and personal expenses. Once you have the amount for both, review if your income can cover all of these expenses. If not, then you should make some adjustments to your spendings. You could try the 50/20/30 method wherein 50% of your income should be allotted for necessities, 20% for savings, and 30% for personal expenditures.
3. Open a separate account for your business
Treat your freelance work as a business and open a separate account for it. It doesn’t have to be a “business” checking account. What’s important is that your personal and business accounts are kept separate. You can solely use your business account for business expenses and for paying yourself. This strategy will be helpful if you need to track your business expenses for taxes.
4. Deal with your taxes
As a general rule of thumb, you should allot 25% to 30% of your income to taxes. Since you’re a freelancer, you don’t have an employer automatically deduct taxes from your income. You’re the one who has to take responsibility for paying your taxes. Before spending on anything else, set aside some money for taxes. For most cases, 30% of one’s monthly income can cover tax bills.
5. Allot money for emergency
Emergency funds can be as flexible as you want. You can use this funding when you’ve ended a contract with a client, and it’s taking time for you to find new projects. Your emergency fund will be the cushion you’ll fall back on.
To secure your emergency fund, you must consistently contribute to it. You can take 20% of your 50/20/30 budget and put it towards your emergency fund. It would be best if you had a goal for this particular budget, such as to secure six months’ worth of income. Once you’ve reached that goal, you can allocate your monthly contribution toward something else.
6. See retirement along the line
Your freelance budget should also include retirement savings. If you’re a traditional employee, government benefits (SSS, Pag-IBIG, PhilHealth) are automatically deducted from your paycheck. However, since you are your own boss, you’re not automatically paying your contributions every time a client pays you.
Setting aside a budget for building your retirement fund and contributions will be up to you. You can choose not to contribute since you aren’t going to be billed anyway. However, if you don’t start saving up for retirement, you’ll have a serious disadvantage later in life. So, start thinking about your retirement while you’re young to enjoy the fruits of your labor when you’re older.
However, since you are your own boss, you’re not automatically paying your contributions every time a client pays you.
Setting aside a budget for building your retirement fund and contributions will be up to you. You can choose not to contribute since you aren’t going to be billed anyway. However, if you don’t start saving up for retirement, you’ll have a serious disadvantage later in life. So, start thinking about your retirement while you’re young to enjoy the fruits of your labor when you’re older.
Keep a Healthy Freelancing Budget
Creating a budgeting strategy is the best way to manage financial unpredictability and inconsistency. By having the discipline and knowing which funds to prioritize, you can have a successful freelancing budget.
Another important fund you should prioritize and allot your budget to is HMOs. Health insurance in the Philippines is often overlooked because health is not a priority when you’re young and healthy. But that shouldn’t be the case, especially since the country is in a pandemic.
If you want to look after your health, BPI AIA offers a wide array of health insurance you can include in your monthly budget. Book an online appointment with one of our Bancassurance Sales Executives to learn more.
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