When you’re a freelancer, your money comes in spurts. You might get $500 this week, $200 next week, and $1,500 the week after that. Some money comes by check, others direct deposit, and others through PayPal or maybe even wire transfer. And you have to keep up with all of it.
Managing a freelance income is hard enough. If you’re spending money as it comes it, that’s even harder. You have to figure out when you can pay this bill or that. It’s a big deal when clients are even one day late. Chasing payments and organizing bills can easily take the place of the writing that’s necessary to earn money.
I avoid that headache by giving myself a regular, monthly paycheck that is the same amount every month. You still have to send invoices and make sure clients pay on time, but you don’t have to be as anal about it – at least I stopped being so anal once I made the change.
You need at least two accounts for this to work. One account is the account that all your writing income goes into, regardless of the payment method. The other account is the account that your payments go into.
Then, decide what you’ll get paid each month (or week or every two weeks, etc). There are a few ways to make this decision. Remember, you need to get paid the same amount each pay period, unless you get a raise or give yourself a bonus.
You can pay yourself…
Based on how much you need to make ends meet. If your living expenses are $1,500 each month, you might decide to pay yourself $2,000 per month. The extra $500 would go toward things like savings, gas, toiletries, etc.
Based on how much you earn. Since freelance writing income often varies each month, you should take an average of your income for the past 12 months if you choose this method. You can also use a moving average where you take the average for the past three (or 4,5,6+) months. For example, your October pay would be based on the average of your July, August, and September income. Your November pay would be based on the average of your August, September, and October income. This method takes a bit more calculation, but you can set up an Excel spreadsheet formula to do it automatically.
Based on your projected annual income. A lot of freelancers I know project their annual income. If you expect to make $48,000 this year, divide that by 12 and pay yourself $4,000 each month. Or by 26 and pay yourself $1,846 every two weeks. Watch out: if you make less than $48,000 this year, you’ll run into some trouble because you essentially overpaid yourself. You can periodically check to see how you’re trending toward your projected income and adjust your pay if necessary.
Decide How Often You’ll Get Paid
I prefer to get paid monthly because it’s easier for me. Most of my bills are due at the beginning of the month, so once the bills are paid, I know how much spending money I have left.
You can also pay yourself weekly, bi-weekly, on the 1st and 15th, or however else you choose. Just make sure your payments are consistent.
How you pay yourself depends on your bank. You can do transfer or write yourself a check and make the deposit. Be timely as timely with your payments as you would want an employer to be.
What About the Extra Money?
I suggest you pay yourself the same amount every month regardless of what you earn (or the average of at least the past three months’ income). If you pay yourself more during the months you earn more, you could have trouble adjusting your spending during the months you earn less. During those months that your income is greater than your pay, just leave the extra in your “holding” account. As that money accumulates you can use it to even out your payments during the months you earn less than your pay.
If you’re always paying yourself more than you earn, then you’ll either have to increase your freelance earnings or pay yourself less. On the other hand, if you’re earning more than you’re paying yourself, you could give yourself a raise, or just wait until the end of the year and pay yourself a bonus.
**Unless you’ve incorporated your freelance business, you still have to pay taxes on everything you earn versus what you’ve paid yourself.
Do you give yourself regular paychecks? Or do you transfer your money into your spending account as it comes?