How to Budget on a Freelance Salary

Sharing is caring!


Image Credit


In recent times, many of us have switched to freelance work. It might be because we lost our primary employment due to the pandemic, or perhaps we want to earn extra working from home, and online freelancing is the best route. Whatever your reasons are for getting into freelancing, you will discover that it’s a slightly different way of life to traditional employment. 


For one thing, you don’t get a salary. You get paid by your clients as and when the work is completed. This can cause many issues when it comes to budgeting and organizing your finances. But there are a few tricks of the trade when it comes to setting up your freelance salary that can really help. 

Know Your Clients 

Freelance clients are diverse. The type of clients you have will depend on your industry, but equally, within that industry, you will have clients who are more or less reliable with their payments. As well as having a sporadic income every month, you also have to contend with clients who make late payments or need chased-up. 


This poses many issues to your monthly cash-flow situation. You need to have a rough idea of when certain clients pay – obviously, the more consistent they make it, the better – but it’s not always possible to have regular payments for freelance work. Still, if you budget for the month and you expect payments to land, it’s frustrating when they don’t show up. 


Keep a close eye on the payment patterns of your clients. Open a file on your laptop, or write in a notebook. Give yourself a working idea of what clients pay consistently well and what clients are falling behind. Consider opening a dialogue with the more difficult clients and drop them if necessary. A freelance income is precarious, so you need as much consistency as possible. 

Keep Personal and Business Account Separate 

An excellent piece of advice for any freelancer is to separate your accounts. Firstly you want to separate your business and personal current accounts, but don’t be afraid to subdivide them further. Open up Separate savings accounts and credit cards; this will help you manage your money and budget better. 


If you have all your money in one personal account, it can start to get confusing, and when it comes to organizing your taxes, you have to trawl through months of spending and income, separating everything. Having a separate business account allows you to keep everything neat and in one place. If you pay yourself a salary to your personal account, you can clearly see your income and monthly spending on one-off items like clip on veneers.


Another benefit of doing this is opening up a business account for your freelancing work and taking out business credit cards. You can further benefit from features only available to business customers and turn your freelance activities into an established enterprise. An engine for your lifestyle costs.   

Pay Yourself a Salary 

Once you have your two accounts set up, you can start to pay yourself a salary. This has several advantages. It means you have a set income every month that you can use to budget with, and it makes things nice and tidy when it comes to organizing your taxes. If the tax authorities do decide to investigate you, everything will be transparent. 


There are different ways you can pay yourself a salary. How much you receive will depend on your work and the stage you’re at in your freelancing career. New freelancers can benefit from a percentage of the profits system. This gives you a small income from your work as you build the business. After you’re established, move onto a set salary, so you have a strong income source. 


Think of your accounts as a reservoir with a dam. The reservoir is your business account that accumulates water, or money, over time. Your personal account is on the other side of the dam. At first, it is only trickle fed by the reservoir. Later there will be a regular stream coming through. It’s best to leave as much money-water in the reservoir at first to avoid tax complications. 

Make a Backbone Account 

Remember the advice about further subdividing your accounts; a backbone account is one of the reasons why it’s a good idea. Since freelancers tend to have inconsistent income streams, it’s more important for them to have an account where money can go to cover shortfalls. An Upwork article calls this a ‘backbone’ account; it’s also known as an emergency fund. 


A backbone account gives you a cushion and some extra security if your clients fail to pay on time or if you lose clients unexpectedly. The cushion also helps to pay your taxes at the end of the year. Whatever you choose to call it, a backbone account gives you emergency funds; it also gives you options since you don’t have to take on work you’re not enthusiastic about. 


Within your business bank account, create a savings account for this purpose. If you’re a new freelancer, manually pay a percentage of your income to the account every month; if you’re more established, you can pay in a regular amount automatically. Only use the fund when necessary, and keep it topped up. 

Build Savings 

If you’re employed, you are automatically enrolled in a company’s pension scheme. It may not be very motivating on payday when a chunk of your wage has disappeared, but it’s the sensible thing to do for when retirement comes around – you don’t want to have a low standard of living on a government pension alone. Unfortunately, freelancers don’t have this system; they have to do it for themselves.


Understanding this as a freelancer, and having the discipline to make regular contributions, is important for the future. It’s so easy to put off, but so important to get started. Attempt to save 10% of your monthly salary, but try less if this proves too much. Whatever you can afford will make a difference. Another useful tip is to find a private pension scheme with a strong interest rate to make your contributions go further.