Quick note: Before I jump into this week’s topic, I want to acknowledge that a lot is happening in the world right now. If things feel heavy, please know you are not alone. It’s hard to navigate life and work amid constant uncertainty.
Freelance business owners may feel extra pressure to push through our to-do lists despite everything going on. But I hope you take care and allow yourself to step away when needed.
I created this newsletter to provide a resource for my fellow freelancers. But I also want to build a welcoming and supportive community space.
If things feel like a lot right now, I see you. And I’m right there with you. ❤️
Hello, Finance for Freelancers readers. Today, were talking income!
I haven’t worked a “regular” W-2 job in 12 years, so it has been a while since I’ve received a predictable, biweekly paycheck with taxes withheld. (👵🏻🫣)
When you transition from a traditional job to freelancing, your income shifts.
Unless you operate your business as an S-corp, your income will likely look different from one month to another.
It’s not unusual for freelance income to fluctuate. Some seasons may be busier, while others are much quieter. Clients may also shift strategies or reduce budgets. No matter the reasoning, income inconsistencies can cause stress.
But I have good news: You can take steps to improve your financial stability and navigate income fluctuations with ease. Let’s review some tools and strategies.
Build and maintain a financial safety net
No matter your situation or experience level, it’s beneficial to have a financial safety net. That’s why I recommend that all freelancers have an emergency fund.
Setting money aside in a dedicated savings account can allow you to feel more financially secure. It can also make it easier to handle unexpected expenses, such as a costly car repair bill.
Your emergency fund can also help you keep your living expenses paid during periods of reduced income.
If you’re thinking, “What if I don’t have an emergency fund?” Don’t fret.
It’s never too late to start building one.
Commit to a monthly savings goal and make consistent contributions to your savings account. With time and effort, your account balance will grow.
If you struggle to remember to transfer funds from your checking to your savings account, I suggest setting up monthly automatic transfers. This strategy has been a game-changer for me.
(Quick side quest: Want to maximize the interest you earn? Keep your emergency fund in a high-yield savings account. I’ll dive into this topic more in a future post.)
Budget based on your lowest-earning month
It’s good practice to keep an accurate record of your earnings. Knowing how much money you’re bringing in each month can help you plan for the future.
I track my monthly income and business expenses using a Google Sheets spreadsheet. Doing this helps me:
Calculate my quarterly estimated tax payments
Make short-term and long-term business decisions
Manage my money with greater efficiency
Want to feel more in control of your finances when your freelance income dips? Use your lowest-earning month as your budgeting baseline.
To identify your baseline, review your earnings from the last 6 to 12 months. Take your lowest monthly total and build your monthly budget around that number.
Here’s why this approach is beneficial.
You’ll feel more confident knowing you can afford your everyday expenses, even when work is less plentiful.
And if this amount doesn’t cover all your bills, now is a good time to determine what changes you can make to feel more financially comfortable.
You may need to make lifestyle changes or business operational changes.
Diversify your income
Want to better protect yourself from big drops in income? Having multiple clients and income sources can help you weather slow work periods.
It is tempting to focus on one industry, one kind of project, or a few favorite clients. But that can be risky because your workload can quickly disappear.
You can protect yourself and your finances by diversifying your clients and income streams.
This strategy can make the loss of one or more clients feel less devastating. Even if things are going well, it helps to keep making time for outreach.
Interested in learning more about why income diversification is a must? I’ve written about a past freelancing experience that taught me a difficult but important financial lesson.
Prioritize clients with consistent work
Some clients only need occasional freelance support. Some clients work with freelancers often and provide a steady flow of work.
As you chat with potential clients, ask whether they need occasional or ongoing support. You may want to focus more time and attention on those who are more likely and willing to provide a consistent workload.
That’s not to say you should ignore or get rid of clients who only provide occasional projects. But choosing to partner with clients who provide regular work can help to make your income more stable.
Chasing one-off projects can be exhausting and make it harder to build a steady freelance income.
If you’re currently going through a slow work period, don’t lose hope. These strategies can help you navigate slower seasons with greater ease in the future.
How do you deal with income fluctuations? Do you have any tips? Let me know by replying to this email.
Budgeting off the lowest-earning month is such a good baseline — the piece I'd add is treating tax as its own bucket that comes off every deposit immediately, not just at estimated-payment time. Once tax is peeled off on the way in, the "great month" balance you're budgeting from is already honest, and the lowest-month baseline gets a lot less scary.