As a freelancer, you know that budgeting comes with many rewards. You can claim added business expenses as a self-employed individual, such as office space, equipment, and employee salaries, but you must also account for fluctuating income levels and commissions. With varying revenue streams coming in each month, it’s a good idea to plan for expenses while guessing at payment statuses.

Industry-Specific Budgeting

Your freelancer’s budget may differ based on your specific industry. A freelance designer who works mainly out of their home has a different set of expenses than a mechanic who operates their own auto shop. As a self-employed individual, you need to create a budget that accounts for the ups and downs of the freelance lifestyle while helping you plan for the future. To do this, consider the special expenses you incur during the normal course of business, and keep them at the forefront when shaping your budget.

Track Your Spending

It’s impossible to budget for the future if you can’t account for your money today. Start by making a list of all your recurring business and personal costs, such as rent, utilities, outstanding payments, and taxes. Next, catalogue important expenses, including groceries, car maintenance, and medical bills, and average them out to determine how much you need for them as the totals can vary from month to month. QuickBooks Online offers a great solution for tracking personal spending and bills. For business expenses, consider QuickBooks Self-Employed, which tracks business expenses and automatically classifies them as tax deductions.

Strive to Use Cash

Overspending is easy when you reach for the charge card every time you make a purchase, especially if you only consider how much you spent when the bill arrives at the end of the month. Using cash for variable expenses such as groceries and dining out proves a good way to keep spending in check. Start by taking out a predetermined amount of cash at the beginning of the week. If you run out of money before week’s end, it might indicate that you spend more than your budget truly allows. The goal then becomes adjusting your variable expense spending so you can live within your means.

Create an Emergency Fund

As a freelancer, you know your income can vary dramatically from one month to the next. Jobs can fall through, or your clients might fail to pay their bills on time. Because your expenses likely remain constant regardless of income, consider keeping a special fund for emergencies. Putting aside cash for emergencies can prevent unpaid bills from piling up and keep you from going into debt when revenue dips. For best results, set money aside during the good times.

Everyone should have an emergency fund to cover at least three to six months of living expenses, but as a freelance worker, you may want to have a little more than this amount. These funds should cover typical events such as medical emergencies and car accidents, but freelancers also face long periods of time in between freelance gigs. Saving money and creating a cushion helps make the times between gigs more comfortable. Keeping a large savings cushion also allows you flexibility to pick and choose the projects you truly want rather than just accepting what you can get.

Diversify Your Client Base

While not explicitly related to money management, diversifying your client base proves a good way to ensure your income levels remain relatively constant. Even if your current clients deliver plenty of work, you can’t assume this provides a never-ending income stream. One way to mitigate a surprise drop in revenue is taking on a broad range of clients with different needs. Start marketing yourself to prospective customers through different channels, and stick with the ones that work best.

Consider a Business Account

Nothing stops you from keeping your business and personal funds in a single account, but opening a separate business account offers numerous benefits for budgeting. As a freelancer, you have the responsibility of business expenses such as office space, equipment, supplier fees, and employee salaries. This means that separating your business expenses lets you keep better track of spending and helps you out considerably come tax time. Because you have all your business revenue and expenses in one place, you can easily identify possible deductions. And in the event of an audit, you have clear records that validate your expenses with the Canada Revenue Agency (CRA).

Plan for the Future

You should always create a self-employed budget that reflects your current income level, but you may also want to design a second aspirational budget as an impetus to increase your earning power. This second budget can inspire you to pursue higher-value clients and take on new jobs, and it may also encourage you to cut costs. The dream of achieving excellent financial health might help you cut back on unnecessary restaurant visits or luxury purchases.

Creating financial projections for your business also helps you plan for the future and improves your handling of cash flow . Good projections can show you when the right time to expand your business. If your current income levels rise quickly to meet your projections, it may be a good time to raise prices, take on more employees, or expand your office space.

Consider a Part-Time Job

Of course clients don’t beat down your door to hire you all the time. This means you might want to consider taking a second job to help pick up some of the slack when you’re between contracts. This can involve anything from working a few extra hours on the weekend and taking on some paid writing gigs to taking on projects outside your industry that still leverage your existing skill set. A secondary income stream can also provide a much-needed break that helps you in your regular line of work. Taking on finite part-time projects can sometimes even help you pick up some new skills or make valuable business contacts along the way.

Price Yourself Fairly

The temptation exists as an independent contractor to offer your services at a discount to help attract business, but this often proves risky. By devaluing your time, you can give clients the perception that your product isn’t as valuable while leaving income on the table. To avoid this, consider spending some time researching the going rate for comparable services in your area. When you set a price, don’t be afraid to ask for it from those who seek your skills. If you find you under-priced yourself or you feel you offer a level of service that warrants a premium, boost your rate and give yourself a raise.

Plan for Insurance and Tax Payments

As an independent contractor, you’re a one-person show. You have no payroll department to help you out, which makes it a good idea to set aside part of your income for taxes and insurance. In fact, many self-employed individuals are required to make quarterly installment payments. Consult a advisor who deals with self-employed tax issues if needed to make things a little easier on yourself, and make sure you keep your tax and insurance payments up to date.

Many freelancers struggle with variable income levels and business expenses not faced by other companies. By creating and sticking to a budget, you can ensure you have enough cash available for day-to-day responsibilities plus any emergencies that crop up in the course of normal life and business. The QuickBooks Self-Employed app helps freelancers, contractors, and sole proprietors track and manage their businesses on the go. Download the app today to stay on top of your financial health.