Budgeting for Freelancers: How Can I Avoid These Common Mistakes?

Being a freelancer has plenty of financial perks. For a start, the typical freelancer salary or payment depends on how much money they need. To clarify, when they need additional funds, a freelancer could easily take on more projects, and vice-versa. However, starting your own freelance business requires you to carefully manage your finances. In short, effective budgeting for freelancers entails the same small business cash flow management techniques. This is the case regardless of the services or products that you will offer.

Failing to do so could cost you plenty of hidden fees and expenses. Unexpected delays (such as when a payment processing app doesn’t work properly) will cause you to fall behind on bills and other financial obligations. As a result, one problem or delay might have a snowball effect. Perhaps most importantly, managing all of this cash flow requires you to dedicate a lot of unpaid time.

Nonetheless, a few tricks and hacks can make budgeting for freelancers simple and easy. For example, having a separate business account would save you a lot of time when you file your taxes. Similarly, other financial management practices could minimize the impact of fees and delays.

Budgeting for Freelancers and Small Business Cash Flow Management

Whether you are an individual freelancer or part of a larger team, starting your own freelance business requires you to manage your cash flow just as any other entity would.

In fact, a little more than half of small businesses in the United States are managed and operated from home. Furthermore, two-thirds of them don’t have any employees, which means that your freelancer salary is the only payroll expense.

Because of this, in order to understand the challenges that come with starting your own freelance business, it is important to look at the shortcomings that small and medium sized enterprises face.

To be more specific, here is the fact that matters most: Over 80% of firms shut down because they didn’t deploy the right small business management techniques.

This problem certainly applies to an at-home company and makes efficient budgeting for freelancers even more crucial to their success.

Perhaps most importantly, entrepreneurs must make a distinction between revenues and cash flow.

In other words, your freelancer salary or earnings could be enough to meet your financial obligations (both business-related and personal ones). Yet this fact is useless without a proper small business cash flow management mechanism.

Accepting Payments

Before starting your own freelance business, identify how customers are going to pay you. While this may seem simple, there are certain factors that could throw a monkey wrench at your plans.

Processing Times

Firstly, how long will it take between the time that your client pays you and when you actually receive the money?

There is no wrong or right answer to the question. Instead, this should depend on how time sensitive your other commitments are.


For example, if you have a sizable savings account to fall back on, then accepting payments via bank wire transfers shouldn’t be problematic, even if it takes up to five or seven days until you receive the funds.

However, some people can’t wait for that long. Therefore, a quicker transfer option, such as through PayPal or Zelle, would be ideal in those situations. Yet this is still not always the case.

A new PayPal user, as an instance, may have their funds held for several weeks after they make their first sale. PayPal does this for security reasons, which is also the case for sellers who have less than three transactions per month.

Equally as important, Zelle allows you to instantly transfer funds between different bank accounts. However, not all financial institutions offer this service.

Because of this, effective budgeting for freelancers requires you to carefully study different payment methods and the associated transfer processing times.


If you work through a website like Upwork or Fiverr, these platform will charge you different types of fees. It is crucial to identify them before starting your own freelance business, but this is equally as important even if you are already operating.

Firstly, since freelancing websites give you access to their leads (potential clients), they deduct a commission from your payment.

Upwork and Fiverr, for instance, will take 10% to 20% of your freelancer salary or earnings from each project. Someone who made $100 from a client may only receive $80 as a result of the 20% ($20) fee.

Secondly, even if you work with clients directly (as opposed to using a third-party platform), payment fees are still a problem. Dealing with it requires sound small business cash flow management practices.

For example, each Stripe (for credit/debit card payments) and PayPal charge a 2.9% fee on each business transaction.

At the end of the month, a freelancer who earns $3,000 will pay $300 (10%) to $600 (20%) through Upwork and Fiverr. This amount is certainly more than enough to cover several bills and expenses.

Even the $87 (2.9%) fee through PayPal and Stripe could make a difference. Just as importantly, some banks may charge you a fixed fee on wire transfers, even when you are a recipient.

Separating and Securing Your Freelancer Salary or Earnings

Some of your personal expenses (such as rent and phone bills) count as work from home tax deductions. Because of this, many freelancers make the mistake of mixing their business and personal expenses.

However, this approach is far from ideal.

For a start, when you file taxes at the end of the year, putting together business deposit records and client invoices can be a nightmare if your accounts aren’t separated.

This is even more time-consuming when you try to identify business expenses and personal costs that could qualify as tax deductions or credits.

You can easily solve this problem by creating a bank account for your business.

Having said that, it may be a better approach to have more than one. For example, you could create a PayPal enterprise profile and use it alongside a bank account.

This way, if one of those methods causes you unexpected delays, your business could still accept payments and access cash through the other one.

Starting Your Own Freelance Business: What You Should Know

Whether you have been a freelancer for a few years or if you haven’t even started, an efficient and reliable small business cash flow management mechanism will determine how successful you could be.

Budgeting for freelancers requires you to pick an appropriate payment method that processes transactions at a desirable cost and within a reasonable amount of time.

Equally as important, fees should always be taken into consideration. They will largely impact your net freelancer salary or income.


Above all else, you should separate personal finances from business expenses. It is even more ideal to have two or more business accounts in case one of them malfunctions or causes payment delays.

Do you know how much you pay in fees and commissions every month? By how much would your revenues change if you spent less time on taxes and more on working with clients?

A few small business cash flow management tricks will certainly take you a long way.

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