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Create an emergency fund
Despite all the benefits that come from working as a freelancer, there may be months in the year where you may desire a steady income to feel you can pay the bills.
Establishing an emergency saving fund can help you overcome the fear of a dry month.
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The "zero-sum budget"
An emergency savings fund buffer is vital for freelancers. It will help you to keep your head above water when your income fluctuates.
A zero-sum budget means living off last month's income alone. This can be done in the following way:
- Start building a budget by assigning every dollar to a particular monthly expense.
- Write down your bills, including rent and insurance.
- Make a list of any debt payments and savings goals, and assign dollar amounts to each. As your income fluctuates, so will the dollars assigned to savings and debt repayment.
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Save 45 percent of every paycheck
Assigning 45 percent of your income to savings is essential if you're serious about building savings and have the ability to pay quarterly estimated taxes.
- Allocate 30 per cent of your income towards taxes
- 5 per cent for reinvesting in your business
- 10 percent to build your emergency savings fund
- The remainder can be used for living expenses or investing in your business.
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Set specific and realistic goals for an emergency fund
An emergency buffer consists of a specific metric you're trying to reach based on what you reasonably will need during a dry month.
Some have a checking account with two month's worth of bills saved. It covers rent, utilities, insurance and cell-hone bills. In addition, they have at least three months of living expenses built up in a savings account.
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