‘We might come closer to balancing the budget if all of us lived closer to the Commandments and the Golden Rule’ – Ronald Regan
In my last post about the importance of budgeting, we discussed about why it is important for all freelancers to maintain a budget at all times. The unpredictable payment structure of your job as a freelancer will not let you have a fixed budget for every month of the year and there will times when you might be operating on a shoestring budget. In this post, we will discuss about some easy tips, which you can use to make a budget that will help you sail through difficult times without having to give up your freelancing dream.
Be realistic
The first thing to do when making your budget is to be realistic. Take the help of online budgeting tools or sit down with pen and paper and calculate your expenditure/ income ratio for the past one year. The easiest way to do that is to divide your income by 12 to find out the average income. For expenditure check your bank balance for the last year and calculate. Once you have the expenditure/income ratio, (which ideally should be less than one) then multiply is by ¾ and this should be your aim for the next year.
Most people tend be overshoot a bit when making the budget because they see the large picture with big amount of money. This is where you have to rein yourself, and make a budget, which looks achievable.
Fix a salary for yourself
This is my secret of budgeting and maintaining the budget at all the times. I have two bank accounts, one in which all the payments come in and the other which is my personal account. At the beginning of each month, I give myself a fixed salary and leave the rest of the amount in the other account. I have been following this practice for two years and have found out that I actually end up saving more than my budget indicated. My monthly budget is then based on the fixed salary that I get.
Ditch the credit cards
Credit cards are easy to carry and use but they can also be the greatest sources of factors that can upset your budget. The ‘buy now pay later policy’ can be quite misleading as you often end up paying more in terms of interests and fees. Therefore, ditch the credit cards when you are working on a shoestring budgets and pay only by cash. This way you will know exactly what you spent and how much you have left with you.
Create an emergency fund
‘Forearmed is forewarned.’ Every budget should have an emergency fund over and above the personal and business accounts. Set aside some money to spend in emergencies such as hospitals, broken computers, extra equipment etc. You can cut down on your monthly expense budget but on no account you should cut down on the emergency fund budget. Keep the emergency funds at a place where you can access the easily.
An emergency fund is the money that you can bank on to keep you afloat during the months in which you are looking for new jobs or have taken a break from working.
Be prudent in spending and bargain wherever you can
Of course, the first rule is that you should not buy what you need. However when you are out shopping for things that you do need, it will not hurt to be prudent in your spending. Check online and newspapers for deals and sales at various stores before you go shopping. You can always bargain for things from the local shop. Before going shopping make a list and stick to it. In fact, if you can take only amount of money that you will need so that you don’t end up buying anything else.
Operating on a budget needs some practice but if you follow through then by the end of six months you will be surprised to see the amount of saving you have.
