Financial planning

How to plan finances on a variable freelance income

Mimi Thurgood
Mimi Thurgood
Sep 1, 2022
How to plan finances on a variable freelance income

There are so many benefits that come with the freelance life, but a stable payday situation is not one of them. Here are some ways you can manage your finances month-to-month when your income varies.


*Please be aware that I am not a finance expert, just a person who learned to manage her money the hard way, through some surprise debts, student loans and tax mistakes. These are my completely unofficial recommendations.*


Plan, plan, plan

If you’ve heard it once, you’ve heard it a thousand times. You absolutely must sit down and make a budget.


If budgeting feels restrictive to you, try and think about it as the freedom to decide how to spend your money. Do you want a line item for coffee or one for massages? Add it to the budget, and never feel guilty for spending on those things again, because there’s a budget for them.


You can do this by yourself on a simple spreadsheet, download a template to get you started or try a free app like 22seven that will nudge you along the way.


Track and tweak your budget

Tracking your spend is vital. If you realistically need to spend more than you had planned or hoped on, for example, groceries every month, it’s better to increase that line item’s budget and find another place to trim it than to go over budget every month. Likewise, when petrol keeps going up, you can’t expect your petrol budget from 2019 to still apply in 2022. You have to be brutally realistic with these numbers to make it easier to stick to them.


Whether you choose to track manually or use an app, put time into your calendar each month to review your spending and adjust your budget accordingly. I like to plan a takeaway or a manicure afterwards as a little reward for being a fiscally responsible adult.


The benefit of using an app like 22seven is that you can connect all your bank accounts, credit cards, investments and even rewards programmes and this will automatically track your spending and categorise it for you.


Work and personal bank accounts

It’s important to separate your business and personal finances. The easiest way to do this is to have different bank accounts. Make sure clients pay invoices into your work account. Then pay only your business expenses, including your salary, from that account.  This will make it easier come tax time, and you’ll never confuse the amount of money in your business bank account for the spending money in your personal account.  Having a “salary” coming into your personal account every month is also helpful when you need to show your bank statements for any kind of credit application.


Pay yourself a smaller-than-you-want set salary

I can’t tell you the exact mathematical formula to work out what your salary should be, but it needs to be an amount lower than your average monthly business income. Keep this in mind when you quote future clients and make sure you’re charging more than the hourly rate you want to go home with.


This is so you can build a buffer of cash in your business account and pay yourself the same salary, even in lean income months.


Remember SARS

Life is hard enough without the pain of having to take cash out of your savings or go into debt to pay tax. You can either pay a percentage of every invoice directly into a dedicated account or savings pocket manually as each invoice payment comes in, or alternatively, set up a debit order every month so you can forget about it.


Diversify your income

Being a freelancer often means you’re being paid for your time, which limits your monthly income to the number of hours you’re able (or prepared to) work.  So, one way to bolster your income a bit and help you get through months where you need to take leave or get sick, is to diversify your income.


There are a few different ways to do this, and what you choose will depend on your skills, interests and the time or finances you can invest into the efforts. Some people create downloadable courses, artwork or templates, upload them to a website like Etsy and let the passive income roll in every time someone pays for your download. Some people start a podcast and open a Patreon, or buy cheap secondhand furniture and flip it. Some invest in rental properties and earn more from those than their full-time work.


The possibilities are endless, but once you have a second revenue stream, especially one that doesn’t directly correlate to how many hours you work, you’ll find it easier to keep your income steady.


Savings goals and emergency funds

Savings can be a tricky beast. If the cash flow isn’t exactly overflowing, you might need to pay off your credit card every month to avoid paying interest and have nothing left for savings. That’s a reality many of us have faced in different stages of our lives and careers.


But when you get to a stable point of your income being higher than your expenses, saving money the right way can relieve a lot of stress. The bad news is you need even more bank accounts or savings pockets for all your savings goals. The good news is these different accounts can help you be the kind of person you want to be.


Want to be a world traveller? Open an account just for travel and transfer a set amount every month. When you hit the amount of cash it takes to book flights to Bali, you can do it without going into debt or eating nothing but oats for three months.


And while it’s important to prioritise saving for fun things like travel, you also need to put money away each month into an emergency fund. The key here is to decide what constitutes an emergency. The obvious ones are medical bills not covered by medical aid, car and home repairs etc. It’s obviously not new sneakers, not even the last ones in your size at 60% off. But take some time and make a list of what you consider to be emergencies, so you know how much to keep in this account.


Invest in expert advice and skills

I saved the best for last. Ask for help and advice, even if you have to pay for it. I’ll say it again because it’s that important: ask for help. Anyone with a killer tax accountant can tell you that it’s totally worth paying a few thousand to someone who can get you tens of thousands back. If you know someone who is super knowledgeable about an area of your business that you aren’t, they might be prepared to advise you over a coffee or for a small fee.


The same goes for day-to-day tasks in your life outside of work. Did I think I could move my own furniture to save some cash? Yes I did. Did I injure myself and end up paying ten times what the professional movers had quoted in medical and pharmacy bills? Also yes. Often if you need something done, it’s worth paying a reasonable amount to a skilled professional to get it done quickly and properly. Just ask my left shoulder.