A Freelancer’s guide to budgeting on variable income

Managing your money as a freelancer on a variable income can be a source of stress that not many people talk about. Walker Cole discusses tips for how to stay on top of your income and get the most out of it, while being aware of your individual needs as well as regulatory requirements.

Managing money with a variable income can be like wrestling an octopus; you never seem to know when the next bill or payment will come from. For freelancers, budgeting and keeping track of finances is crucial. If your income is unpredictable, you can't always spend like those with a permanent 9-5 job. You need customized budgeting support, discipline in your spending and to learn how to expand and contract according to your changeable income and needs.

Here are some tips for how to build a budget that reflects you and your unique needs, as well as put some money away to meet regulatory requirements and to assist future you.

Before you blow all your earnings in a high-income period, there are 6 things you should be saving money for:

• Tax

• Superannuation & Investment

• Unexpected business expenses

• Initial set up of an emergency fund

• Paying off debt

• A holiday fund

  
  

1. Know Your Minimum Monthly Needs

Calculate the absolute minimum you need to cover essentials like rent, utilities, groceries, insurance, and debt payments. Use this number as your baseline to avoid financial stress during slow months. I call this my accordion budget, and I can always spread out from here.

Creating a budget and recognising its limitations are not only an exercise in increasing your financial literacy. Budgeting is really an important building block for having a less stressful life and being able to spend money where you want to. At Lone Shark, we consider budgeting as self-care, especially if you have a variable income.

2. Separate accounts for business & personal

One way to stay on top of your finances and create some regularity, is to open separate accounts for business and personal use. Pay yourself a “salary” from your business account to create some consistency in your personal budget. You could also create a “buffer” account to smooth out your income. During high-income months, transfer surplus funds into this account. Use it to cover expenses during slower periods.

3. Save for Taxes & Superannuation as You Earn

How much to put aside for tax depends on how much you earn as a freelancer in Australia. Freelancers are responsible for their own taxes and superannuation. Put aside some money in a separate, dedicated account to avoid surprises during tax season.

In Australia, the income tax you owe depends on your income bracket based on the progressive tax system. For 2024-2025, these are the rates of taxation for Australian residents:

$18,200: No tax (tax-free threshold)

$18,201-$45,000: 16c on every $1 over $18,200

$45,001-$135,000: $4,288 plus 30c for each $1 over $45,000

$135,001–$190,000: $31,288 plus 37c for each $1 over $135,000

$190,001 and over: $51,638 plus 45c for each $1 over $190,000

* these figures have been pulled from the ATO website on 9 December 2024

Freelancers earning above the tax-free threshold should calculate their tax liability based on their projected income. A 25-30% saving rate works as a conservative average, but the actual rate depends on your income. Some people like to use the 80/20 Rule. With this rule, you assume you’ll live on 80% of your income and save 20% for taxes, slow months, or business growth. Adjust the percentages to fit your specific circumstances, like saving more during busy seasons.

It's important to note that this does not include the medicare levy, another form of tax which adds another 2%. For non-residents the taxation rate is higher at 30% for income up to $135,000.

4. Plan for Variable Expenses

   
   

   Wait, we haven’t finished thinking about expenses yet! Freelancing often involves business-related costs like software, equipment, or travel. I know when I create content, there are sometimes unexpected novelty items I might need all of a sudden. I also might want to rent an AirBnB for the day, just to have some extra space and time to work on my own projects. Budget for these expenses by creating a sinking fund and adding small, monthly contributions toward expected business costs.

   
   

5. Automate Savings Where Possible

Automate savings for taxes, retirement, and emergency funds whenever you get paid. Even small, consistent contributions can add up over time.

Use apps like Wave, QuickBooks Self-Employed, or HoneyBook for income tracking, client management and expense management. Budgeting apps can help allocate funds effectively.

6. Invoice Promptly and Follow Up

Late payments can disrupt your cash flow. Send invoices as soon as a project is completed and follow up regularly on overdue payments. Consider tools like QuickBooks or FreshBooks to streamline invoicing and track income.

7. Build a Quarterly Budget

Since freelance income can vary widely month-to-month, it may assist to budget quarterly instead of monthly. Review your income and expenses over three months to get a clearer picture of cash flow patterns.

8. Keep Costs Low, Even When Income is Flowing

During a high-income period, avoid dramatically increasing your personal expenses. Stick to your original budget and use extra income for savings or investments. Write a list of purchases that amount to your variable business expenses, which you can splash out on at this time. For the rest, you will need to still correctly separate needs from wants and exercise discipline on your spending.

Bring to mind your savings goals: Do you want to live debt-free, go on a certain holiday or make a big purchase? Prioritising saving over spending at this time allows you to get closer to that goal. Keep a visual reminder near to focus your attention.

9. Prepare for Downtime

Freelancing often comes with feast-or-famine cycles.

Use busy periods to:

• Bulk up your emergency fund.

• Pay off debt.

• Save for retirement

• Invest in professional development.

• Budget for your unique needs.

Everyone needs a holiday and downtime from work. Freelancers are no exception. Mini-breaks are excellent for freelancers who can work from anywhere and fit the travel-time into their working schedule. Forgetting to take breaks will lead to burn out and add to your overall stress.

How will you personalise your budget?