Keys to Surviving and Thriving with a Freelance Income

Keys to Surviving and Thriving with a Freelance Income - picture of back of man with laptop in one hand with arms raised

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In case you hadn’t heard, my husband started working at home with me in early March of this year. Yep, he totally quit his job…..again. So instead of putting in his 40+ hours at the funeral home, he’s spending his days twenty feet from me in our home office.

While the change has been awesome for our family, it did mean losing out on the very few work-related benefits we did have. My husband’s stable income – gone. His 401K match – gone. The small stipend his employer paid towards our health insurance – gone.

Yep, now that we both work at home, we’re completely on our own. But, are we scared? Heavens no.

As someone who has been self-employed for several years now, I have learned a thing or two about what it means to have absolutely no idea how much money you’ll make from one month to the next. And we’re not just surviving, we’re thriving.

Keys to Budgeting and Surviving with a Freelance Income

Call me crazy, but I actually enjoy having a variable income. For me, it’s about the thrill of the chase. Now that I no longer have stable employment, my income has the potential to fluctuate wildly based on how much (or how little) work I do. Here’s how we make it work (and how you can make a freelance income work too):

Use a Zero-Sum Budget

Zero-sum budgeting is a form of budgeting that uses last month’s earnings to fund this month’s expenses. It also requires you to “spend every dollar you earn,” with the understanding that you should pay your investments and savings accounts as if they were bills.

This budgeting method is extremely helpful for freelancers because a) it helps you base your budget on reality, not income projections, b) it forces you to live within your means, and c) it forces you to “pay yourself first.” That paying yourself first part is incredibly important for freelancers who are responsible for their own retirement savings.

Keep Your Expenses as Low As You Can Go

In April of 2014, I made around $6,650. In April of 2015, I made over $16,000.

You might look at those figures and guess that my lifestyle has changed dramatically over the last year, but it really hasn’t. Even though we earn considerably more now, we keep our core expenses around $3,500 including daycare, living expenses, groceries, etc.

That’s why this works. When you earn a variable income, it’s important to keep your expenses as low as you can. That way, a bad month won’t throw you off for good. Obviously, keeping your expenses as low as possible can also boost your savings rate. The more you earn, the more you can stash away.

Stay Out of Debt

Ever since we became debt-free several years ago, we’ve enjoyed a kind of peace and contentment we never thought possible. I don’t miss wondering how much we owe, and to whom, and planning our lives around making those payments.

Being debt-free is essential when you’re stepping out into the freelance world – partly because it helps keep your expenses low, but also because it gives you a lot more flexibility. When you don’t owe anyone money, you can take on as little (or as much) work as you want. You even have the ability to take time off to promote a special project or invest time in important aspects of your business that won’t pay off right away.

Save Money for Freelance Taxes in a Separate Account

Freelance taxes can be insanely complicated, so much so that I often feel like I need to earn a master of science in accounting to keep track of it all. Even though I don’t have my quarterly taxes down to an exact science, I’m at least smart enough to stash away a third of my income so it’s there when I need it.

That’s right. Every month, I take around 30% of what I earn and stash it away where I can’t touch it. This strategy has been helpful for me because it means I am never stressed or resentful about mailing that check in. (Well maybe a little bit.) Since it’s “out of sight and out of mind” already, I hardly feel like it’s mine.

Pay Your Retirement Accounts Like a Regular Bill

It always makes me sad when I hear that freelancers aren’t saving adequately for retirement. It’s so easy! There are plenty of strategies and brokerage firms out there, but here’s what I do:

I have a SEP IRA through With a SEP IRA, you can contribute up to 25% of your income with an annual cap of $53,000. Through my Vanguard SEP IRA, I invest in several index funds and one target date fund. And since I do business with Vanguard, I enjoy the absolute lowest account management fees out there. We also have Roth IRAs that we can max out each year. That option might go away for us eventually because of IRS phase-out rules, but we’re taking advantage while we can.

This is where zero-sum budgeting comes in handy. Instead of waiting until the end of the month to see if you have anything leftover to save, you simply list your retirement savings on your budget right beside your mortgage and utility bills. Get used to paying it along with your other bills and you won’t have to worry about eating cat foot and scraping by on social security when you’re 70.

Build an Emergency Fund That Can Carry You Through

We’ve all heard the saying, “make hay while the sun shines.” In other words, you need to save while you can just in case you encounter lean times. Before you launch into self-employment, you should have a few month’s expenses stashed away. Of course, you don’t have to stop saving once you go out on your own. Once you’re self-employed, keep saving as much as possible and build up a solid emergency fund that is big enough to carry you through hard times.

I like to stash away as much as I can during the good months. That way, the money is waiting and ready if we ever come across a particularly bad month. I hope that never happens, but I would be a fool if I didn’t plan for it.

Can You Survive On a Freelance Income?

It’s hard for people to understand how we survive without anyone in this house having a real job. However, it makes a lot more sense to people when I explain that we live well below our means and have options when it comes to saving for retirement.

The bottom line: The more you plan, the better off you’ll be. And the bigger the gap you can build between your income and expenses, the richer you’ll become. Being a freelancer might sound crazy to some people, but it can be extremely lucrative and satisfying if you know how to make it work to your advantage.

Do you live on a freelance income? How do you make it work?

Additional reading:

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  1. Congratulations! This is a terrific description.

  2. You are so right on with this post. I keep my expenses as low as possible and so anything I make above and beyond allows me to reach my other financial goals like, buying a second home at the beach (in cash). If you just keep moving your expenses up and up along with your income, if the well dries up, you’ve got serious problems. Awesome post!

    1. Holly, you said a mouthful here:

      “When you earn a variable income, it’s important to keep your expenses as low as you can. That way, a bad month won’t throw you off for good. Obviously, keeping your expenses as low as possible can also boost your savings rate. The more you earn, the more you can stash away.”

      I would just point out one thing: this applies to everyone, whether they have a variable income or not. Keeping our expenses SET while our income rose accelerated our drive to earlier retirement and got us there years sooner. When I sat down to calculate how much sooner for a blog post I was writing, I came up with NINE years sooner. Now that is a big number.

  3. LOVED this post, Holly!! And HUGE congrats on the income for April!!!! I have to admit – I’m so sad you quit your income reports, but I do understand your reasonings!!! If you don’t mind me asking…what percentage would you say is blog income vs freelance income?

    My freelance income is a bit different than most because I technically don’t have to pay any bills or living expenses unless my husband has a slow month. We could consider combining everything (well, our bank accounts are combined..but our goal is always to save all of my money and as much of his as we can), but this method has worked for us for years. Plus, I’m SUPER motivated to save haha so I always want to make as much as I can.

    I also have to say — I would love love love if my husband and I could work together!! He doesn’t have a huge interest in freelancing, tho, so we’re actually going to get our real estate licenses and do that on the side. Who knows, maybe it will turn into something 🙂

    Again, loved this post!! You explained everything wonderfully!!

    1. My income was about 10K writing and 6k everything else last month. Keep in mind, I write some really technical stuff that is outside of the personal finance sphere. It pays more and that helps boost the income I earn from writing.

  4. No freelance income for me. Seems the key is to build it as you continue to work your 9-5 until the freelance income matches or is more and then you are free to walk away from the day job.

  5. Congrats to your husband Holly and I think he really made a good decision! Actually, I’m currently living with my freelance income and as much as I can I’m trying to keep my expenses low, well aside from my travel expenses. 🙂

  6. Awesome work you guys! That’s so great that business is going so well for you. You’ve worked hard to get where you are- enjoy it! I often repeat the “make hay while the sun shines” mantra to myself. We are saving for retirement and paying down student debt like crazy right now. We need to take advantage of these years while we are young, healthy, and making a good income! Unfortunately, you never know when times may change.

    1. Yes, exactly. Our plan is to make as much as we can for as long as we can.

  7. My husband’s job is commission only, so we have been used to living that way for a while. Now that I’ve started freelancing, I’ve been saving every dime of that money to see how it goes first. I would love to be able to reach Holly Johnson status one day with it!

  8. Great tips, especially about paying retirement accounts like they\’re bills and having a \”how low can we go\” budgeting approach. I think it\’s great you can both work from home, be flexible with your time, and still support your family! And all without fear because you\’ve planned ahead and avoided lifestyle inflation.

  9. We do very much the same thing with our income. We could kill it in one month only to get considerably less the following month, but we never sweat it because we have a plan in place that carries us through. We always get odd looks from family members when we say the fluctuating income doesn’t bother us, but it really doesn’t – plus we get to work with each other so it makes it even better.

    1. I actually LOVE having a fluctuating income. The thought of going back to a 9-5 where someone else dictates how much I earn makes me want to die. I want to be in control.

  10. Well as you know I haven’t been quite as successful as you as a freelancer, so I’m still working on trying to improve that. The only reason I don’t do a zero sum budget is because if I have a very good month, I’d still rather live on a the previous super tight budget and use that extra money to go into an emergency fund. Or maybe I just don’t have a firm grasp on how it works? 🙂 Not sure. Congrats on all your success!

    1. With a zero-sum budget, you live off of your cheap budget. The difference is, you put your extra funds into other stuff instead of letting it sit idle – or get spent somewhere. Sounds like we actually do things similarly!

  11. I’m not looking forward to the quarterly taxes part involved with freelancing but I agree that putting 30% of your earnings up can give plenty of peace-of-mind during that stressful time. I don’t rely on my freelance income for much right now other than extra debt payments but hopefully as it grows I can use it to boost my savings and once I become debt free I really don’t mind living off a fluctuating income.

  12. Congrats on this April’s income! $16k in one month is more than my base salary, even if I add in all of my benefits!

  13. Holly Sanford says:

    I’m just starting to dabble with starting my own blog and would love to write as my full-time job but I’ve always assumed that wouldn’t be possible since I am a single mom and have to carry the health insurance but you guys are proof that it’s not impossible. Thanks for the motivating article.

    1. Holly, I started my freelance career with a full-time job (40-50 hours per week) and two kids under 3. You can buy health insurnace on the open market, but we ultimately chose to join a health care sharing ministry because the new healthcare law made plans in our state so expensive. A family of four making under 94K can qualify for subsidies, however. Plus, plans could be much cheaper in your state. Indiana just sucks balls when it comes to healthcare right now.

  14. I have variable income but I usually know what the minimum will be. Anything else gets put toward retirement ventures.

  15. That’s so great to hear that your business is doing so well 🙂 I do some freelance work as well, and I definitely agree that keeping expenses as low as possible and having a hefty emergency fund is key to keeping the stress of a fluctuating income low. Even if our income didn’t fluctuate, it would still be good to do those things! Not even salaried jobs are a “sure thing”, you can be laid off at any time.

  16. Besides the obvious negative of freelancing – giving up a job/career and the benefits that come with it – your solutions hit every box on my “concern” list. Honestly it would be so much easier to freelance if you had no debt because 1) it’s easier to build up savings and 2) you aren’t going to be foreclosed on or sued if you can’t pay bills. I think people should read this post WELL before they are even considering freelancing full-time.

  17. As an entrepreneur I feel like I live like a freelancer and never know where the next dollar is going to come from. I don’t know why but the zero sum budget just seems so complicated for me, instead I focus more on a goals based budget where saving is our priority so that we have a cushion for the tough months and we don’t let the good months go to our head.

  18. I don’t live on a freelance income, but I am self-employed. The company I work for is in another state and thus can’t hire me as an actual employee.

    I found that a separate account for taxes (including FICA) is absolutely integral. Things were insane before I started doing that. I think anyone who is gaining traction in freelancing should open a business account and put the money directly in there.

    And I sit down to allocate money among our various savings account as part of our entire budgeting process.

    I have my IRA money withdrawn every month automatically. It’ll get more complicated once I get a SEP next year and have to get that done through my corporation. But it still needs to be something automatic because otherwise it just won’t get done.

  19. I live on my day job income. Personally, the only way I would be comfortable freelancing full time is my spouse made enough money to support both of us and save at the same time, or if I was very close to financial independence. But I tend to be more conservative with this than many I think.

  20. Love this post! Great job on the $16K and super awesome that Greg is now at home working with you.

  21. Making retirement account contributions automatic and setting money aside for savings are HUGE. I find too many people working for themselves, full-time or part-time, don’t take advantage of the accounts available to them as self-employed workers. Plus, if you contribute to retirement you win twice: you set yourself up for the future AND get a tax-break now if you’re contributing to a tax-deferred account! That’s big when you have to deal with those higher SE tax rates 🙂

  22. This should be required EXIT CRITERIA for all people making the leap to self-employment. Having a budget, keeping expenses steady, running your home on a fixed income and having a BIG cash pile is a prerequisite for success when leaving a job.

    And you’re killin’ it, nice work. Entrepreneurship is the new “stable” job these days, having several sources of income is way better than relying on a corporate giant.

  23. I have to admit, zero-sum budgeting seems kind of challenging but it\’s definitely something worth trying. Stories like your husbands and yours are something we need more of! Definitely a great way to motivate other freelancers and entrepreneurs out there!

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