Budgeting for Freelancers

accountantIt’s tough enough to budget money correctly when you’re on a regular income, but it gets really tough when your income is irregular and unpredictable.

What do you do with all that money you make, now that you’re a fabulous freelancer? Do you throw it in a bank account and pray there’s enough for that flat screen you’ve been wanting and this month’s rent? Are you saving or always coming up short with your bills?

I’d like to show you a great budget system I use for myself. I’ve tried lots of different budgets, but this one is by far the best. It works great with my irregular income and helps find every free penny, so I have enough for bills, spending and saving. What is this system?

The Modified Envelope System

I use a modified version of the envelope system. The envelope system used to mean that you’d literally take all your money out in cash, place it all in an envelope with the name of the bill on the front and only spend what was in that envelope.

But, it’s almost 2010 and I don’t know about you — but I hate carrying cash and definitely don’t want to carry 20 envelopes around with me everywhere. Enter Snowmint’s Budget.

It works on both the envelope system and has an irregular income section called Pay/Deposit Rules. This is what I’ll be showing you how to set up. I don’t want to show you how to use the actual program, so make sure you familiarize yourself with the basic workings of Budget. You can download a free trial for both Macs and PCs.

Of course, if you don’t want to try out Budget, you can use old-fashioned paper and some math or the regular envelopes. Another budgeting program may also offer something similar.

Getting Started

First, you need to take out a regular piece of paper and a pen. What are your bills? Let’s start with the mandatory monthly ones. I’ll use my own budget for an example so you can see how it works in real life. Here are my mandatory monthly bills:


Now, what are some of your regular expenses? Do you have pets or children? Make sure you include their expenses as well. I also like to keep some extra envelopes for “blow” money (That’s fun money), for gift money, for random expenses that might pop up and for savings and taxes. Most of these expenses vary by month and many like gas, may need to be filled more than once a month. Here are mine:


Now, with regular budgets, you’d now write down your income and compare it to your expenses and adjust from there. How do you do this when your income changes from week to week and instead of two paychecks a month, you may make 20 to 30 or more deposits a month?

I base my income off my expenses. To comfortably make all my expenses outlined above, I know I have to sell at least four sites a month. This is a pretty reasonable way to base your freelance income if you know you normally sell that much or more a month. You can also base it on average of the last three months income you’ve brought in.

At this stage, the goal is to have the least possible amount of things to pay and a good savings system (like my 20% of every deposit), in case of a slow month, so you can still pay everything.

If you know your expenses are more than what you’ve been making, it’s time to cut back and save money. Check for things you can cancel like unused gym or Netflix subscriptions. Make sure your budget is as close to realistic as possible. For example, if you normally spend $100 a month eating out, don’t budget in $20. Therefore, you may need to monitor your expenses for a couple of months and adjust where needed.

Setting Up the Rules for Irregular Income

After you’ve set up your basic envelopes, it’s time to budget for your irregular income.  Pay/Deposit Rules allow us to set up the envelopes to be filled in order of importance and stops filling them once they’ve reached the limit amount. You can also set it to fill by percentage, which is great for taxes and savings.

I set my incomes to fill at half with each deposit. That way, if I’m paid $600, the whole deposit doesn’t get stuck in the rent envelope, but gets distributed a bit more evenly between multiple envelopes. This helps for envelopes that are used more than once a month like gas and groceries. The example deposit we’ll use is $550.

Let’s start by setting up our most important bill: Taxes (remember, you can do ALL of these steps by paper, you don’t have to have Budget, but I recommend at least trying it).

So, we’ll tell Pay/Deposit to start there. If you expand the menu, you can see all of the options it offers. We’ll set it to deposit 20% of the deposit into our Tax envelope, with no limit to how much can accumulate in it. The settings should look like this:


Allocation shows how much is going into the envelope with that deposit.

The next most important bill is savings. Hit the plus button on the right to add a new rule and drag it under the taxes one. I like to put 20% after taxes into my “Snowball” envelope (which is my savings and extra debt payments envelope). Now to set it to 20% after taxes, not 20% of the total deposit, make sure you choose the “percent of remainder” option.

Let’s set up out third envelope, Rent. This is a fixed amount every month, so we’ll put in $325 (half) per deposit. Now, we don’t want any more than $650 to be put into that envelope until we empty it out. So, we need to set a limit of $650 of target envelope balance. After you’ve received $650 in that envelope, your next deposit will skip that envelope and put the money in the next envelope that needs it. Your set amount envelope should look something like:


You can see that the allocation of our $550 is set to zero, which means I already have $650 in that envelope. Pretty neat huh?

Continue doing this for each bill until you’ve set every envelope in the order you want the money to go in. Let’s take that $550 and see what happens when we already have money in envelopes:


You can see it automatically skips down to the bill that doesn’t have enough money in its envelope. This system is great because once you set it up, it requires almost NO tinkering, unless you need to add or delete a bill!

Let’s pretend we’re broke freelancers and have $0 in our checking account. What happens when we put $550 in the amount field? Try it and see how the money gets broken up.

Why the Envelope System?

After doing the envelope system for so many years, I really don’t understand how people pay bills without it.

In a regular bank account, you may see $2,000 in your balance, but how do you know if you have money for bills and that $800 toy?

The envelope system lets you see immediately how much you have to spend on anything. It shows you if you have money for all bills and toys, or none at all. It also shows you that you may have $800 in your toy envelope, but your $100 short in rent, so you would need to adjust.

Some Other Budgeting Packages

There are several other free and low cost budget programs available. You may wish to consider one of the following budget programs:

We haven’t tried these particular programs personally, but they have a good reputation online. If you do try them, let us know what you think.

Your Turn

Do you have any great budget systems you use? What are they? What do you think of this modified envelope system?

What are some of the problems you’ve had with trying to budget your freelance income? Did you figure out a way to fix it?

Image by unconstructive_bry


  1. says

    @Buddy Yup I’m a big Dave Ramsey fan. This system is based off his, but is made for electronic lovers and irregular incomes. As a matter of fact, when someone calls into his show to ask how to budget for irregular incomes, he offers the same way as above, just on paper, not with a program or anything. It really works!

  2. says

    Budgeting is one place where I’m really efficient. I have a personal account, business account and a savings account. The latter two is where I place all of the money that I’m saving up for no particular reason.

    I always make sure that I have enough money for bills two months in advance. The reason I only do this is because I’m in a situation where I can jump into a part-time job at basically any time I want and only have to work two weeks to pay my incredibly-low overheads (go me).

  3. says

    Are there any programs besides “Budget” that work for mac and use a similar method? I’ve been using Mint for awhile, but it doesn’t seem to do the trick like Budget… but Budget seems kind of clunky to pay money for. Maybe that’s just my mac-ishness getting the best of me.

  4. says

    Great write-up!

    I use Mvelopes for our family budgeting and LOVE it.

    I do not freelance full time yet (as of now, freelance $ goes to special events and debt reduction), but I do think Mvelopes will also work well for a full-time freelancer.

    Keep the great articles coming!

  5. says

    I don’t have any and I think I’ll try your recommendation. I really need to fix my own personal financial system. This post is very timely for me. Thanks for sharing.

  6. says

    @David I’m not sure, Budget was the first one I tried and I really liked it. It’s not very clunky, IMO, I think it actually works a lot better on the Mac than the PC. It’s not the pretty program out there, but it gets the job done well.

    @Alexandra I use Mint as well to keep up with my account balances, however their “budget” section is terrible, IMO, and very limited to what it can do.

  7. says

    Nice post Amber. I’ve been looking for a system like this. Two questions: Does it sync with your online banking software, and does it have an option for fluctuating bills like electricity?

    @David I agree this thing looks ugly. I think we use Macs partially because of their beautiful interfaces.

    @Amber I also agree that Mint’s budgeting system is nearly useless.

  8. says

    Since leaving my last comment I’ve started using MoneyWell. I’m not sure that it’s any nicer than Budget, but it also uses the envelop system and came with a MacUpdate bundle I got awhile back.

    @Matt & Amber: Mint’s budgeting used to be horrible, but it seems they recently redid it. It’s pretty spiffy now and at least as good as other non-envelop systems.

  9. says

    @David I have tried Moneywell and I liked it’s interface a lot, but I found that it required a lot of time manually configuring transactions over and over and I had a hard time understanding the bucket concept. I hope you have better success than me.

  10. Stevie says

    I was so excited when I read this post, I went and downloaded Budget. Unfortunately, Budget’s development of their Mac program is farther along than the Windows counterpart. For the longest time, I thought I was being dumb, but turns out that none of them are on the Windows install. All of the wonderful things that were mentioned in this article don’t work on the Windows version. Oh the horror!

    If anyone has any suggestions for a system that works on Windows that’s very similar to Budget for Mac, I would be ecstatic to find it!

  11. says

    I’ve been using Budget Sketch, a free online app, for about three months.
    It’s kind of saving – oriented and is helping me a lot to get organized even before the month begins. It works with regular incomes and expenses just as well as to track irregular ins and outs.
    So far I’m very content with it. By the way, it also has a pleasant interface.

  12. says

    Sadly the Windows-version is several major versions behind, and lacks in a few features, such as syncing with “Budget Touch”, the iPhone/iPod Touch-version of the program.

    I sent them an e-mail regarding this though, and received this answer:


    We hope to have the next release for Windows out in the next couple of months and it will include syncing.


    They responded in just a few minutes, so they must surely be alive.
    I wouldn’t hold my breath though, it’s been “out soon” for a while.

  13. says

    Seems this website doesn’t support blockquotes very well, so here is the quote again:

    We hope to have the next release of Windows out in the next couple of months and it will include syncing.


  14. says

    @Kim the iPhone app literally just came out a week ago. This program was originally mac only I believe and they didn’t add a windows version till later. However, we have both the mac and windows version in our house and they work great.

    I haven’t had the need to download the iPhone app yet – I’ll have to try it out soon

  15. says

    Sorry for jumping to conclusions.
    I’ll be trying the program for some more, and if not my breath held, I’ll certainly keep my fingers crossed.

    Thanks for the introduction to this!

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