Budgeting for the summer

Fluctuating income can be burdensome for many freelancers. There are mechanisms you put in place to create a stable income, but even the best-made plans aren’t foolproof.

When the work just isn’t coming in, it can be tempting to throw in the towel and start scouring the job boards. But it’s important to remember that quiet periods are a normal part of freelancing – especially in the summer. What matters is how you deal with them.

Downtime can be a welcome opportunity to work on your business (or even join your clients in hitting the beach and putting the out-of-office on). If you’ve prepared financially for quiet spells and planned around them, you see them in a totally different light.

With that in mind, here are a few tips to help you budget for the summer.

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Treat freelancing as a business

You might be dabbling in freelance work alongside a full-time position. Or maybe you’ve made the leap to become your own boss. Whatever the case, treat your freelance income as a business – set up a dedicated bank account.

Receiving payments directly into your personal account contributes to a ‘feast or famine’ mentality. You’ll feel brilliant when money is rolling in, but in the months when it doesn’t, you’ll be tempted to panic.

Instead, set up a business account so you can separate your personal finances from your freelance income and expenses. It will help you develop a clear overview of your true earnings so you can spread money over the quiet periods. It also makes tax and accounting a hell of a lot easier.

When you begin to have an idea of what’s coming in over time, you can set yourself a salary that’s realistic and pay yourself a set amount monthly too – just like you would with any ordinary employee. So even if the business has a quiet month, you’ll know you can depend on a stable income.

Give yourself a ‘run rate’

Once you’ve got the business bank account in place, it’s easier to start building a rainy - day fund. Find out what your ‘run rate’ is so you can tick along nicely without having to dip into your personal savings to keep the business going.

Take some time to identify how much you need to live per month and try to keep ideally six, if not at least three months’ savings in the bank to cover your costs. This provides you with a crucial financial cushion to fall back on whenever times get tough.

Too many freelancers live on the edge during the quiet periods, but it doesn’t need to be this way at all. Be honest with yourself and conduct a proper financial evaluation of the money you need to keep doing without getting yourself into difficult situations.

Don't forget tax

Tax is perhaps a freelancer’s biggest pitfall. When you first start out, nobody ever warns you about having to produce a tax return yourself.

Every year, you need to complete a self-assessment . This can be filled in and submitted online. Then you’ll need to pay your tax bill, which is normally split into two payments six months apart (the first in January, and the second in July).

Again, a dedicated business bank account can help here – make sure you set aside a little money every month to cover your tax liability. Putting aside approximately a quarter of your gross earnings each month is usually a good benchmark.

If you’ve never done a self-assessment before or your earnings have changed considerably in recent weeks or months, use the tool on the gov.uk website to calculate your income and gain an insight into what you might owe.

Of course, it’s worth pointing out that a limited company has additional responsibilities (including the company tax return, annual accounts and VAT returns if relevant).

Forecast your cash flow

Freelancing is sometimes unpredictable, but there are regular events that you can more easily anticipate. For example, the summer and around Christmas. If you typically experience downtime, it is worth preparing yourself financially by forecasting your cash flow.

Map out your monthly income and expenses and see what you’re expecting to fall into your bank account in the coming months. Make sure any big outlays (like tax or membership renewals) are included so they don’t creep up unexpectedly at a time when cash is tight. Accounting software can often do this automatically – which saves you a huge amount of time and the effort of working in Excel. Looking ahead lets you plan accordingly – so know when a quiet period is on the horizon. Not only this, but if you know when your high-earning months are, you can be smart with any payments or investments.

Grow a retained income

Client demands may be seasonal, but that doesn’t mean your income should be. If you’ve got a client that you’re doing regular ad hoc work with, float the idea of taking them on retainer.

This way, you always have a steady flow of work coming in on a monthly basis, which is absolutely pivotal during those less busy times of year. Instead of killing time in the kitchen, you’re beavering away at business as usual.

Don’t be put off by proposing retainers to clients either. Remember: it benefits their cash flow as well as yours. They’ll know exactly what they need to pay each month and what kind of work they’ll be getting in return.

With retained income, you have that important sense of security you need to plan for the future.

Tip for keeping business coming in

There’s no way to guarantee high income all year round when you’re freelancing. Some months you’ll be stacked, others you’ll have finished your entire day’s work before breakfast. 

What you need to keep in mind is that when things are quiet, you should never just sit around twiddling your thumbs. Be productive. 

Use these times to make sure your accounts are in order and put out your new business enquiries. Network at local groups and get your face out there. Chase up on any projects that have been left on the back burner. Work on your monthly, yearly or five-year plan. Explore ways to diversify or make your service stronger. Keep your website and social accounts fresh and consistent to encourage people to get in touch, and establish a clear, recognisable brand identity. 

Freelancing is exciting, but it’s rarely a breeze. The good news is that smart budgeting can make all the difference. Manage your money right, and you’ll not only survive the quiet periods, you’ll learn to love them too.

Meet the author

Kelly Gilmour-Grassam

Copywriter and Director of Making You Content