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Personal Finance: How to Budget as a Full-Time Freelancer

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The gig economy’s roots began at the start of the 20th century when jazz musicians began referring to performances as gigs. In the mid-century, temporary agencies began to rise in popularity. By the turn of the century, we found ourselves living in the web-connected, digital world with gig and freelance work becoming more accessible and easier to find. Finally, out of the ashes of the Great Recession, the gig economy as we know it today was born. 

The size of the freelancer workforce has stayed relatively constant at about 57 million, but what’s changed is that more freelancers are doing it full time — an increase of 11 percentage points from 2014 to 2019, according to the most recent annual survey of freelance workers. It’s reasonable to think the pandemic has pushed more workers to make their side hustle a main hustle. So how are those looking to make the jump supposed to manage the inconsistent and unpredictable income that’s inherent to freelance work?

The best way to manage financial inconsistency and unpredictability is to create a strategy. Your strategy should be informed by your personal economics, pricing and your runway, which is the amount of time you have until you run out of money. Think of it as a buffer to get you through natural income fluctuations. By looking closely at these factors, you can reverse-engineer a sustainable freelance practice. 

Start with a realistic personal budget. What are all your monthly personal expenses? Figure out what you spend on housing, regular life expenses and any personal debt payments. Don’t forget to add in variable costs, nonessentials, fun spending, personal savings and investments. The total is what you’ll plan to pay yourself from your freelance business each month. For example, let’s say your monthly total is $4,500. Plan to add about 30% to it for taxes, as a general rule of thumb. When you earn income as a freelancer, you’re responsible for paying taxes on your income. While traditional employees have part of their income withheld from their regular paychecks for taxes, freelancers who earn income are often required to pay estimated taxes on a quarterly schedule

Read More: Personal Finance: How to Budget as a Full-Time Freelancer

2021-06-09 12:30:15

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