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Hi! I'm Debbie Anderson for About.com. When you are living the freelance life, it can be wonderful. However, the one question that always comes up month after month is how do you pay monthly bills while earning an unpredictable freelancers income? Well, there are a few things that you can do and tips to hedge off potential pitfalls, so today I'm going to cover a few budgeting tips on how to pay your monthly bills while still earning your income via an unpredictable self-employed income schedule.
Assess Your Finances Often
Tip number one is to know where you are at financially: Use a pencil and a notepad of paper and write down at the top of the paper, including your monthly personal savings and investment contributions, what is your TOTAL monthly cost of your personal living expenses for each month? Write this number as LIVING EXPENSES
Below that, how much money does it cost you to do the work that you do and how much money do you need to keep on hand on a monthly basis to continue doing the freelance work you do to make the current level of income that you earn? Write this number down as OPERATING COSTS.
Next, in terms of financial numbers - how much money do people owe you for the work you have already completed and for which you are currently waiting payment for this work? Write this number down as OUTSTANDING INCOME.
Finally, again, while thinking in terms of financial numbers - How much work are you currently doing, and how much work do you currently have lined up? Write this number down as FUTURE INCOME.
Create a Realistic Income and Bill Schedule
Tip number two is to calibrate your income and expense funds so that your money matters flow into more of a calendar based scheduling and planning effort.
First, looking at your calendar and starting at the first of the month, set aside enough money in your accounts to pay both your living expenses and your operating costs on a revolving 6 weeks to 60 days out scheduling basis.
Second, once again using your calendar as a guide, even if you do not have the money in your hand just yet – always plan how, when, or IF you already have the cash in place for covering all of your expenses for at least a revolving 90 days out from the date you are currently looking at the calendar.
Prepare for Gaps in Payment
Tip number three is to plan for contingency. Things have a tendency to wrong sometimes, so it is always best to plan ahead.
First, always keep and maintain a healthy cash reserve on hand for both your living expenses and a separate reserve for your operating expenses that is in addition to your 6 weeks to 60 days worth of other money held back for your monthly expenses. These cash reserves are critical to your financial well-being in the event of a client failing to pay an invoice or other unforeseen circumstances.
If you are just starting out, build up these cash reserves by always paying yourself first with every client payment you receive! For example - if you make $1000 on a contract – tuck away $200 of that money and pretend you only made $800 to put toward your monthly bills and operating cost instead of the full $1000 toward these expenses.
Next, prepare a cash flow account, which can also be your business checking account, or a For Business Expenses Only line of credit to help cover the revolving operating costs you need to cover while working on projects or providing your services to clients.
Keep a Steady Stream of New Clients
Finally, keep in mind that a body in motion stays in motion, so always plan for, and continue looking for work so that you are constantly filling up your calendar with new orders for your products or services on a revolving 90 days and beyond scheduling basis.
With these few simple budgeting & money scheduling tips to guide you – paying your monthly bills on time with an unpredictable freelancer’s income should go a little smoother!
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