Essential Budget Do’s and Don’ts for New Freelancers

Whether you’ve decided to freelance part-time or full-time — or most likely the former in the hopes that it will soon become the latter — the surprising truth is that the most important thing in your world right now isn’t customers. It’s cash.

Obviously, you’d like (or make that love) to have an influx of customers. But if there’s a bit of a lull — which can happen when you’re starting the freelance journey — you’ll survive if you have enough cash to keep you afloat; at least for a little while. What’s more, you can tap into your reserves to advertise your offerings, which should help you onboard profitable customers. However, if you don’t have enough money to pay your bills and cover your necessary business expenses, then you’ll hit the end of the runway, and be forced to shut down entirely.

Your mission? Make every dollar — or make that every cent — work as hard as you do to keep your freelancing dream alive. To help make that happen, here are some essential budget DO’s and DON’Ts.

Freelancing Budget DO’s:

  • Do make and stick to a frugal budget. Your cash reserves are your lifeline, and will keep you going in between projects and gigs.
  • Do choose the right legal business structure. A sole proprietorship is the simplest and cheapest type of business to create and run. However, you may want to create a corporation for legal liability protection, for tax benefits, and because it’s easier to raise money down the road. For example, if you’re a mechanical magician and want to join the ranks of classic car restoration experts, you’ll almost certainly need to incorporate right off the bat. However, if you’re launching a graphic design business or you want to be a social media consultant, you may be OK starting out as a sole proprietor, and then graduating to a corporation later on.
  • Do keep organized records of all income and expenses. You’ll need these for tax time. Speaking of which: make sure that you clearly understand the rules when it comes to business deductions. For more information on this, check out the IRS’s website.

Freelance Budget DON’Ts:

  • Don’t waste money on non-essential things. You can resume your daily vente Frappuccino ritual once you’ve established yourself. Until then, buy a good and cheap coffee machine and prepare to bootstrap it for the foreseeable future. With this being said, it’s fine to reasonably reward yourself every now and then — after all, you’re not taking a vow of poverty. Just remember that while many full-time employees have severance as a safety net if they lose their job, you have your savings.
  • Don’t ignore your retirement savings. You may not have access to a 401k, but you can start an individual retirement account (IRA) and deposit up to $5,500 per year. Not only will this help build your nest egg, but it will reduce your taxes owing on your 1040.
  • Don’t be paranoid about taking on debt. There is scary debt and sensible debt.

The Bottom Line

Freelancing can be extremely rewarding, both professionally and personally (and you can be one of those digital nomads who hang out in Starbucks all day and make more than some doctors and lawyers). But to reach the Freelancer Promised Land, it’s essential that you’re smart with money. Keeping the above budget DO’s and DON’Ts in mind will go a long way towards ensuring that your journey is pleasant — and not painful.