How to Calculate Your Budget as a Freelance Writer

To be fair to all freelancers out there, this article covers all the numbers a freelance writer needs to think about when creating a budget. But, to be fair, this article extends to most types of freelancers, from freelance plumbers to freelance lawyers. In reality, even though a freelancer’s jobs may vary, the way they budget should be very similar (if not the same).

Why Should You Accept These Numbers?

This article is going to throw percentages at you and numbers at you, and you may wonder why you should accept them. You may wonder which studies they were born from, or which academic journal published them.

The numbers and percentages you find in this article are guidelines, and they are guidelines from raw experience. Yet, if you are still skeptical, look to your common sense. Each number and each percentage is explained, and if the explanations do not sit well with you, then disregard them.

A Contingency Fund Needs To Exist

You need to put 5% of your earnings into a savings account each month to act as your emergency fund. You can never touch it until you are in a big mess…and a big mess will occur. Life as a freelancer guarantees you two things. The first is that you can make a living if you work hard. The second is that life is going to trip you, and then kick you repeatedly while you are down.

Life is going to have an uninsured driver smash into your parked car and drive off, and on the same day your PC will freeze and lock, and your biggest client will go missing for two months when payments are due. You need a spare amount of liquid money within arm’s reach if you wish to make it through life’s little trials.

Underestimate All Earnings By 15%

Even if you have work lined up for the next few months and you can see how much you are going to earn, you need to knock around 15% off that amount if you want a real and genuine budget. A lot is going to happen before you finally receive your pay. Your delivery person is going to lose your product, or break your product, and you will need to give a refund. Your work is going to be rejected, and somebody is not going to pay. You are going to have to give a discount because something was late, and somebody is going to squeeze you and lower your prices before paying.

Let’s say that you are a publisher for LeadsMarket, and you are earning good money. Even if you are earning money on a consistent basis, you have no idea what next month holds. There may be another global economic downturn, or bitcoin may become fiat currency, or China may forget its debts. In a sense, when you underestimate your earnings by 15%, you are actually being conscientious enough to not take your earnings for granted, which is always a prudent business strategy.

Overestimate All Expenses By 10%

Not only is this a smart thing to do, it is actually a sound future-planning protocol. Costs are going to go up every year no matter what you do. People who work on razor-thin margins dread the coming years. People who have a 10% buffer are not as worried.

However, the 10% overestimation is not about future worries, it is about reality. It is about the fact that a machine is left on over the weekend and your electricity bill shoots up unexpectedly. It is about your vehicles breaking down and you having to hire an outside delivery firm at further expense. Your overestimation is there for when your supplier doesn’t send enough materials, so you have to special order the rest from another company at a premium rate.

An Operating Fund Must Exist At All Times

If you do not pay people right away, such as your staff or suppliers, then you need the money in your accounts before you make the promise. For example, if you hire somebody to work for a week, then you should have that person’s weekly wage already in your accounts ready to pay at the end of the week. If you make an order for 400 units to be paid at the end of the month, you need to have the money already in your account before you make the order.

This may sound impractical since many times you rely on the supplies or the worker to “Make” the money that you need to pay them with, but you cannot run a business in this manner. You need to get ahead of yourself, to put it in lay terms, and you need to have the operating money already in the bank before you make any form of contract or promise.

Measure Your Small Business Operations

Each and every small business operation needs to be measured so that you may calculate exactly how much each element costs, from the costs of running your machinery, to the cost of the coffee stirrers in your office kitchen.

There are two reasons for this type of in-depth monitoring. The first is so that you may accurately budget and plan for the coming months and years. It is impossible to create workable and accurate plans and budgets if you are not fully aware of how much you are spending.

The second is because as a freelancer, you cannot be wasteful, which means you need to find ways to save on your small business operations for your enterprise.

Forget Your Base Income

How does one abandon the basic principles of budgeting? After all, every business sets up budgets with a base income, and then maybe adds projections for extra work, more work, good weeks, and so forth. As a freelancer, you are going to have to abandon this notion until you have between five and ten employees.

Why ignore one of the tenants of budgeting? As a freelancer, you cannot be sure of your income. Unless you are working an exclusive contract for one company with a set income, then there is no way to guess and guarantee your income. Yet, where that is the academic reason for abandoning your base income budgeting, the real reason is because your base income is not a projection…it is a target.

Your Base Income Is A Target

As a small-time freelancer (with five or fewer staff helping you), your level of income is going to vary from week to week and month to month. It is better to abandon base income projections and create targets instead.

Take your total outgoings, and then add on the 10% as suggested earlier. Once you have that figure, add on 20%, and that is your target. Your base target it to make that figure. If done correctly, you should cover all your expenses and make around 20% profit if you hit your target.

If your target is to make your bills and then earn profit, then you can work without burning out. You are able to decide how much you work, within reason. And, this is going to be good for your state of mind. Your state of mind is especially important if you are a writer because it is a very solitary profession that often comes with lots of psychological baggage.

Conclusion – What Is A Writer To Do?

Doesn’t this article put a lot of emphasis on how unlucky a freelancer will be? After all, freelance writers are unlikely to fall off ladders or electrocute themselves while drilling through walls, so why always assume the worst. The answer comes from Cicero who said you should expect the best and prepare for the worst (46 BC).

Also, when times get hard, you will find that it is good to have buffers such as over/under-estimated budgets. As Franz Kafka said, “Better to have, and not need, than to need, and not have.”

Author Bio: Mónica Rodriguez is a writer, art historian, and editor at LendGenius. She specializes in Art History, Art Conservation, History, Literature, Finance, Tech, Wellness, and Travel. In her free time, she’s usually roaming the halls of the museum or the local bookstore surrounded by stacks of books.