CH 10 QUICK GUIDE TO SAVING AND BUDGETING FOR FREELANCERS

CHAPTER TEN OF TEN - CH 10. Review and Adjust Your Budget Regularly

Photo by George Tsiolis on Unsplash

CH 10. Review and Adjust Your Budget Regularly

Why It’s Important. Freelancers often face fluctuating income due to the irregular nature of their work, making it a challenge to maintain consistent financial plans. Regularly review and adjustment of your budget is essential to ensure that it aligns with your current financial situation. By doing so, you can identify potential shortfalls, adjust spending, and savings goals. This proactive approach helps you stay financially stable, avoid debt, and make informed decisions that contribute to long-term success.

How to Implement.

Set a Regular Review Schedule.

• Monthly Reviews.

  At the end of each month, review your income, expenses, and savings to assess whether you’re staying within your budget. Monthly reviews allow you to quickly identify any discrepancies or changes in your financial situation and make timely adjustments.

• Quarterly Deep Dives.

  In addition to monthly reviews, conduct a more in-depth financial review every quarter. This can include evaluating your overall financial goals, such as retirement savings, debt reduction, or major purchases. Quarterly reviews provide an opportunity to make larger adjustments and set new targets for the next few months.

• Use Calendar Reminders.

  Set reminders on your calendar to ensure that you don’t skip these reviews. Making them a regular part of your routine increases the likelihood of maintaining financial discipline.

Analyze Income Variability.

• Track Income Sources: Freelancers often have multiple income streams, such as different clients, projects, or passive income. Regularly look at which sources are most consistent and which are variable. This analysis helps you understand your income patterns and make more accurate predictions for future earnings.

• Adjust Projections: If you notice a significant change in income—either higher or lower—adjust your budget accordingly. For example, if a major client ends a contract, you’ll need to reduce discretionary spending and focus on securing new clients or projects to replace that income.

Monitor and Categorize Expenses.

• Track Expenses in Real-Time. Use budgeting apps like Mint, YNAB, or QuickBooks Self-Employed to categorize and track your expenses in real-time. Regular monitoring helps you spot trends, such as increasing costs in certain categories, and take action before they become a problem. Of course, you have to remember to use them.

• Adjust Categories as Needed. During your monthly review, identify any categories where you’re consistently overspending or underspending. If you’re spending more than expected on certain items, consider reallocating funds from other categories or finding ways to reduce those expenses.

• Evaluate Subscriptions and Recurring Expenses. Freelancers often use various tools and software that require subscriptions. Regularly review these expenses to ensure that you’re getting value from them. Cancel any subscriptions that are no longer necessary or look for more cost-effective alternatives.

Reassess Savings Goals.

• Prioritize Goals. Your savings goals may shift based on changes in your financial situation. For example, if you’re earning more than expected, you might decide to accelerate your retirement savings or increase your emergency fund. Conversely, if income drops, you may need to temporarily reduce contributions to long-term savings in favor of covering immediate expenses.

• Emergency Fund Adjustments. Regularly assess your emergency fund to ensure it reflects your current living expenses. If your expenses increase, adjust your savings to maintain an adequate buffer. This is especially important for freelancers, who may need to rely on their emergency fund during slow periods.

Plan for Future Expenses.

• Anticipate Major Expenses. During your budget review, consider any upcoming major expenses, such as tax payments, business investments, or personal purchases. Planning for these expenses ahead of time helps you avoid financial strain when they occur.

• Allocate Funds for Irregular Costs. Freelancers often have irregular costs, such as tax payments or business upgrades. Set aside funds regularly to cover these expenses when they arise. This ensures you’re not caught off guard and don’t need to dip into savings or take on debt.

Adjust Spending Based on Income.

• Flexible Budgeting. Since income can fluctuate, create a flexible budget that allows you to adjust spending based on your current income. For example, categorize your expenses into “needs” (essentials like rent, utilities, and groceries) and “wants” (non-essentials like entertainment and dining out). When income is lower, prioritize needs and reduce spending on wants.

• Treat Extra Income as a Bonus. If you have a particularly good month with higher-than-expected income, consider treating it as a bonus. Instead of increasing spending, use this extra income to bolster savings, pay down debt, or invest in professional development.

Review and Adjust Financial Goals.

Align Goals with Current Situation.

As your financial situation changes, your goals may need to shift as well. For instance, if you reach a savings milestone, you might set a new goal, such as investing in new business equipment or expanding your services. Conversely, if your income drops, you may need to focus on maintaining stability rather than growth.

Stay Adaptable.

Freelancing requires adaptability, not just in work but also in finances. Regularly adjusting your budget and goals ensures that you remain financially resilient, regardless of how your circumstances evolve.

Last Words.

Freelancers’ financial situations are inherently variable, so maintaining a static budget can be ineffective. By regularly reviewing and adjusting your budget, you stay in control of your finances and can respond proactively to changes in income or expenses. This approach helps you avoid financial stress, make informed decisions, and achieve your financial goals more consistently. It also empowers you to adapt to the ups and downs of freelancing, ensuring that you’re always prepared for whatever happens.t