Personal Budget Plans For Freelancers And 1099ers

Self-employed folks, freelancers, moonlighters: Making a budget is one of the most important things you can do to become amazing at your job. But there’s just one thing that makes it a bit more difficult…. If you’re working for yourself, you need to create separate budgets for your professional life and your personal life.

Check out our advice on how to create a Professional Budget For Freelancers, and make things much easier for success in your chosen field. Depending on how you’ve set up your business (Are you working as a sole proprietor? Have you set up a LLC or S-Corporation or the equivalent in your area?), you’re either going to have two separate sets of books or carve out some funds for your freelance career from your personal budget.

But, yes…. That personal budget.

Here are the first steps in creating an amazing Personal Budget For Freelancers:

Budgeting Is Awesome

Personal Budgeting Basics For Freelancers

Budgets are based on three things:

  • The income which you are making.
  • The expenses which you are paying.
  • The savings you are holding for the future.

As a freelancer, your big challenge is figuring out how much of your income to dedicate to expenses and savings.

I’m a big fan of something called The 50/30/20 Rule. It’s a pretty amazing template for handling your income, and roughly goes like this:

  • Dedicate 50% of your income to paying your “needs” like groceries, health insurance, utilities, and rent.
  • Put away 20% of your income for savings, which includes things like 401(k)s, investments, and building an emergency fund.
  • Use 30% of your income for your wants.

The 50/30/20 Rule comes from a great book called All Your Worth: The Ultimate Lifetime Money Plan which was written by Elizabeth Warren and Amelia Warren Tyagi. When she co-wrote the book in 2005, Warren was best known as Dr. Phil’s go-to personal finance guru and as a Harvard bankruptcy effort; Warren later went on to become a Democratic senator from Massachusetts. But no matter what your political leanings are, her advice is incredibly solid.

Your goal is to hack the 50/30/20 Rule to be applicable to freelancing.

But You Need A Budget That Makes Sense.

Hacking Your Budget

When you’re self-employed, you need to make sure you have money for your personal life and your business expenses.

If you’re keeping one set of books (and remember, it’s crucial as a freelancer to keep separate bank accounts and credit cards for your professional life) tweaking the 50/30/20 rule to make sure you have enough money for your life.

So that gives us two separate budget breakdowns for freelancers who *don’t* take out salary from a LLC or S-Corporation.

You’ll want to do something along the lines of one of these two 50/30/20 hacks:

1) Personal Budgeting For New Or Struggling Freelance Businesses

  • Dedicate 40% of your income to paying your personal “needs” like essential groceries, health insurance, utilities, and rent.
  • Put away 20% of your income for savings, which includes things like 401(k)s, investments, and building an emergency fund.
  • Use 20% of your income for your personal wants and non-necessities.
  • Dedicate 20% of your income to business expenses. This includes internet, gas/transit for client visits, business travel, subscriptions to SaaS services, software, stationery, shipping and other necessities.

2) Personal Budgeting For Established Freelance Businesses

  • Dedicate 45% of your income to paying your personal “needs” like essential groceries, health insurance, utilities, and rent.
  • Put away 20% of your income for savings, which includes things like 401(k)s, investments, and building an emergency fund.Use 25% of your income for your personal wants and non-necessities.
  • Dedicate 10% of your income to business expenses. This includes internet, gas/transit for client visits, business travel, subscriptions to SaaS services, software, stationery, shipping and other necessities.

And because we love well-produced YouTube videos, here’s a primer from Bank of America on how to make a budget of your own:

https://www.youtube.com/watch?v=pN709oX9Bzk

How Do I Handle All The Specific Stuff?

The big thing and the 100% important thing you need to understand is that Needs means just that: Needs.

Your needs budget is everything you need to remain in good physical health, able to work, to have a roof over your head, and to take care of your dependents… and that’s it. Paying rent or your mortgage payment is a need. Buying that new coffee table you’ve had your eye on isn’t. Buying groceries like milk, coffee, and eggs is a necessity. Buying a pint of Ben and Jerry’s? That’s fun money.

It’s also important to remember you’ll need to allocate more to your freelance budget than you think. Sometimes you’ll need to make business trips, or print business cards before a big trade show. You’ll have client lunches sometimes, or an expensive bill after a really busy month. Or let’s be frank: There will be months when clients won’t pay you on time, and you need to account for that.

Save For That Rainy Day.

Being Smart About Savings

The Savings portion of things is so, so crucial. If you’re self-employed or a full-time freelancer, you’re the one responsible for saving for retirement. Freelancers need to build a retirement strategy, and to set up 401(k)s or other saving schemes independently. You don’t have the income-matching that employees at many companies get, and you also have the added expense of paying for health insurance through Obamacare or another mechanism directly out of pocket.

If you’re in debt for things with high interest rates (Credit cards and high-interest student loans, we’re looking right at you), it’s smart to allocate some extra money out of your savings each month to help pay these off. Because of the power of compound interest, credit card debt can eat into your savings.

You also need to build up an emergency fund. Like I mentioned earlier, clients will sometimes pay you far later than expected. When that happens, you need to make sure there’s money in the bank so you aren’t broke.

Let me give you a personal example. Several years ago, I worked on a large-scale consulting project for a corporate client. My work involved an extended stay in Manhattan that the client would reimburse me for, and I was going to be paid a large amount of money to help their company navigate a difficult content strategy initiative. When I asked how long payment would take, they assured me their vendors were paid within 60 days.

I made a rookie mistake as a freelancer: I based my entire budget on the big sum of money that was waiting for me. Instead of taking on additional gigs during downtime to have backup income, I banked on this one project which would last two weeks but would pay a whole lot of money.

You can guess what happened next. The client took months to pay the check they promised me. After putting $2000 or so on my personal credit card (another rookie move!) to pay for the not-cheap price of a New York hotel room in addition, it took them four months to pay me and three months to reimburse me for my business expenses. And that was only after I took on the role of debt collector, making endless calls and emails to their accounts payable department.

If not for some amazing friends who helped me out, I would have been in a very hard position for those months. Remember: Sometimes, clients will take forever to pay (or, worst yet, not pay at all). Keep a comfortable emergency fund for those rough months.

But Make Sure To Have Fun.

Wants And Fun Money

When it comes to budgeting your wants and fun money, be smart about it. In short: BUY THINGS THAT ARE AWESOME. The longer version? BUY THINGS YOU WILL CHERISH FOR A LONG TIME AND WHICH WILL BRING LASTING JOY.

Almost Millions is based around the idea that penny pinching and forced frugality is awful. Instead, you want to be mindful about money.

Don’t spend your money on fast food because you forgot to pack a lunch. Spend your money on a meal at the restaurant you’re dying to go to. Don’t buy a shirt you see on sale because it’s only $20. Save for that expensive jacket at Nordstrom’s you’ve been dying for. Save up for that expensive gaming computer of your dreams instead of throwing money at the Steam Store because you’re bored on a Tuesday night.

Overspending is a debt trap, and much of that overspending comes from buying things we want but don’t really use. This is why it’s crucial to use a service like YNAB or Mint to see where your money is going, and to see what budget mistakes you’re making.

Everyone makes different budget mistakes. I spent months overpaying on my phone bill because I didn’t bother researching a similar and much cheaper plan my mobile provider offered. A good friend of mine living in a rural area regularly forgot to go to the supermarket during open hours, and instead paid an insane grocery markup shopping at 7-11. My old neighbor used to complain that every time they want to the mall, they’d buy clothing they never wore. Everyone has a different trap.

Making A Personal Budget

As mentioned above, I’m a huge fan of services such as Mint and YNAB for building and sticking by a monthly budget. But even if you can’t afford those services, it’s easy to create a budget spreadsheet in Excel or Google Docs, and to stick by it.

The video below gives a great starting point for making a budget inside Excel:

https://www.youtube.com/watch?v=AZbWLu5zzAo

I’m also a fan of the many, many free templates online which allow you to build a home budget inside your favorite spreadsheet program. For a good starting point, check out Microsoft’s free Personal Finance Templates, Google Doc’s Template Directory, and Make Use Of’s Guide To Personal Finance Resources Inside Google Drive.